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'""cm of ' NBS SPECIAL PUBLICATION 511-1

U.S. DEPARTMENT OF COMMERCE / National Bureau of Standards

I

ECONOMIC EFFECTS OF METALLIC

CORROSION IN THE UNITED STATES
ECONOMIC EFFECTS OF METALLIC

CORROSION IN THE UNITED STATES

- - - A Three Part Study for Congress - - -

% NBS Special Publication 511-1. Economic Effects of Metallic Corrosion in the

United States. A Report to Congress by the National Bureau of Standards. (Including Appendix A, Estimate of Uncertainty). SD Stock No. SN-003-003-0 1926-7.

Price $2.30.

NBS Special Publication 511-2. Economic Effects of Metallic Corrosion in the

United States. Appendix B. A Report to NBS by Battelle Columbus Laboratories.

SD Stock No. SN-003-003-01927-5. Price $4.25.

Order these two publications by SD Stock No. from U.S. Government

Printing Office, Superintendent of Documents, Washington, DC 20402

NBS GCR78-122. Battelle Columbus Laboratories Input/Output Tables. Appendix C of "Economic Effects of Metallic Corrosion in the United States".

Order this report by PB-279 430 from the National Technical

Information Service, 5285 Port Royal Road, Springfield, VA 22161,

Price $21.50.
ECONOMIC EFFECTS OF METALLIC

CORROSION IN THE UNITED STATES

Part I

A Report to the Congress by the

National Bureau of Standards

L.H. Bennett, J. Kruger, R.L. Parker, E. Passaglia,

C. Reimann, A.W. Ruff, and H. Yakowitz

National Bureau of Standards

Washington, D.C. 20234

E. B. Berman

Edward B. Berman Associates, Inc. Box 366

Marblehead, Massachusetts 01945

U.S. DEPARTMENT OF COMMERCE, Juanita M. Kreps, Secretary

Dr. Sidney Harman, Under Secretary

Jordan J. Baruch, Assistant Secretary for Science and Technology

NATIONAL BUREAU OF STANDARDS, Ernest Ambler,Acting Director

Issued May 1978

*>» STANDARDS

tIBRARY

/oo

AJo 57/- /

C

^
Library of Congress Catalog Card Number: 78-600033

National Bureau of Standards Special Publication 511-1

Nat. Bur. Stand. (U.S.), Spec. Publ. 511-1, 65 pages (May 1978) CODEN; XNBSAV

U.S. GOVERNMENT PRINTING OFFICE

WASHINGTON: 1978

For sale by the Superintendent of Documents, U.S. Government Printing Office. Washington, D.C. 20402 SD Stock No. 003-003-01926-7 Price $2.30

(Add 25 percent additional for other than U.S. mailing).
CONTENTS

Page

Executive Summary vii

I. Introduction 1 A. Previous Studies 2

B. Legislative History 9

C. Corrosion Costs: Concepts and Definitions 10

D. Input-Output (I/O) Model 12

E. Operation of the Data Survey 12

II. Results 13

A. National Costs 13

B. Special Area Costs 21

1. Federal Government 21

2. Personally Owned Automobiles 22

3. Electric Power 24

4. Energy and Materials 24

III. Discussion 27

A. Reliability of Results 27

B. Corrosion Problems in Developing Technologies 28

IV. Conclusions 30

V. Acknowledgments 30

VI. References 33

Appendix A. Estimate of Uncertainty A-i

1. Introduction A-1

2. Cost of Corrosion A-1

3. Uncertainties in Stipulated Final Demand A-3

4. Uncertainty in Intermediate Output Costs of Corrosion A-13

5. Uncertainties in Capital Costs—PFCF A-17

6. Summary and Conclusions A-19

7. References A-2

iii
LIST OF TABLES

Page

Table 1. National Cost of Corrosion and Corrosion Protection in the U.K 3

Table 2. Potential Savings in the U.K. through the Use of Better Corrosion Protection Technology 4

Table 3. Cost of Corrosion Control in India (1960-61) 5

Table 4. Annual Australian Direct Loss by Corrosion, Including Cost

of Corrosion Control 6

Table 5. Estimate of Cost of Corrosion Prevention in Japan in 1976

Based on Production and Manufacturing Sectors 7

Table 6. Total Corrosion Expenditures According to NACE Survey for All Industry Classifications and All Regions of the United States 8

Table 7. Some Elements of the Costs of Corrosion 10

Table 8. Industry Indicators of Metallic Corrosion (from BCL) 14

Table 9. Major Components of Metallic Corrosion Costs 17

Table 10. Final Demand and Intermediate Corrosion Costs (from BCL) 18

Table 11. National Impacts of Metallic Corrosion on Primary Energy Sectors 26

Table 12. National Impacts of Metallic Corrosion on Non-Renewable Raw

Materials Sectors 26

iv
Contents for Appendix B. (Issued under separate cover as SP511-2, see inside front cover)

1. Introduction

2. Background

3. Methodology

4. Determination of Cost of Corrosion

5. Cost of Corrosion: Analyses of Results

6. Conclusions

7. Glossary

8. Corrosion Bibliography

9. Appendices to the Appendix

a. Corrosion Cost in the Federal Government

b. Corrosion Cost in the Electric Power Industry

c. Corrosion Cost for Personally Owned Automobiles

d. Sector Titles and Corresponding Standard Industrial

Classifications

Contents for Appendix C. (Issued under separate cover as NBS-GCR78-122, see inside front cover) Direct Technical Coefficients, World I Direct Technical Coefficients, World II Direct Technical Coefficients, World III Direct and Indirect Effects, World I Direct and Indirect Effects, World II Direct and Indirect Effects, World III Capital/Output Coefficients, World I and World III Capital /Output Coefficients, World II Corrosion Useful Life, World I Corrosion Useful Life, World II Corrosion Useful Life, World III Dollar Value of Interindustry and Final Transactions, World I Dollar Value of Interindustry and Final Transactions, World II Dollar Value of Interindustry and Final Transactions, World III Dollar Value of Interindustry and Final Transactions, Difference

World I minus World II Dollar Value of Interindustry and Final Transactions, Difference

World I minus World III Social Capital/Infrastructure, World I Average Annual Capital Replacement Rate, World I Average Annual Capital Replacement Rate, World II Average Annual Capital Replacement Rate, World III

V

Executive Summary

Metallic corrosion is the degradation that results from interaction of metals with various

environments, such as air, water, chemical products, and pollutants. This process has a significant

effect on many sectors of the American economy, since corrosion and its prevention results in the

utilization of materials, energy, labor, and technical expertise which would otherwise be available

for alternative uses. However, until the present study, no comprehensive investigation of the full extent of this economic impact had been undertaken.

As a result of corrosion, users of metal products incur a wide range of costs, including

painting and other methods of corrosion control, more expensive, corrosion-resistant materials,

premature replacement of capital goods, larger spare parts inventories, and increased maintenance.

Some of these expenses (the avoidable costs) could be reduced through the economical best

practice application of available corrosion control technology, but lessening the remaining costs

(the presently unavoidable costs) would require advances in technology.

In response to a Congressional directive, this study of the cost of metallic corrosion to the United States was undertaken by the National Bureau of Standards (NBS). The analysis required

in this study was placed under contract to the Battelle Columbus Laboratories (BCL). The overall study was conducted jointly by BCL and NBS. The study was designed to provide a reference to allow the economic impact of corrosion to be compared with other factors affecting the economy.

In 1975, corrosion cost the United States an estimated $70 billion. This was 4.2 percent of the estimated Gross National Product for that year. Of this total, about 15 percent or $10 billion was avoidable. An uncertainty of about ±30 percent for the total corrosion cost figure results from inadequate data in some areas and unsure technical and economic judgments. The

uncertainty in the avoidable costs is considerably greater. This study used a modified version of the BCL National Input/Output Model. The model

quantitatively identifies corrosion-related changes in resources (material, labor, energy, value

added), changes in capital stock, and changes in replacement lives of capital stock for all sectors of

the economy. The use of this model is well suited for estimating the total direct and indirect costs of corrosion. To quantify corrosion costs, three scenarios were developed and applied using the input/output model. They were: (1) the "real world" economy in 1975, (2) a "corrosion-free world," and (3) a world in which "best corrosion prevention practices" are used. Cost differences between these three "worlds" provided estimates of total and avoidable corrosion costs. The model

placed industrial corrosion costs on a common scale to allow better comparison of existing and

future data. The total cost was determined for final demand groups and intermediate producers

and was also allocated among the various producing sectors of the economy via a series of "industry indicators." These indicators identified both avoidable and unavoidable, direct and

indirect costs that each sector experienced in the production of goods and services and in capital

acquisition. Four aspects of the U.S. economy received especially detailed analysis for corrosion costs. These were the Federal Government, personally owned automobiles, electric power industry, and

loss to the nation of energy and materials due to corrosion. The total corrosion costs in the Federal Government sector amounted to about $8 billion, or approximately 2 percent of the Federal

budget. Personally-owned automobiles accounted for $6 to $14 billion. The uncertainty in this cost resulted primarily from uncertainties in estimating ranges of useful lifetimes of cars. Corrosion

costs to the electric power industry were estimated to be about $4 billion. Further, the loss to the nation of energy and materials due to metallic degradation was analyzed. About 3.4 percent of this

vii
country's present energy demand was generated by such corrosion; of this, one-sixth (about 0.6

percent of energy demand) was estimated to be avoidable. About 17 percent of our present

demand for metallic ores resulted from metallic corrosion, about one-eigth of this (2.1 percent of

metallic ore demand) was avoidable. Due to the emphasis in this report on the U.S. economy in 1975, the important issue of

corrosion costs associated with new and developing technologies was addressed only in general

terms. New corrosion problems will arise in the areas of energy, environment, materials conservation, and food production. As an example, new energy technologies will utilize materials under high temperatures and pressures in highly corrosive environments. Thus, future costs of

corrosion may rise substantially in some sectors.

viii
ECONOMIC EFFECTS OF METALLIC CORROSION IN THE

UNITED STATES

L. H. Bennett, J. Kruger, R. L. Parker, E. Passaglia,

C. Reimann, A. W. Ruff, and H. Yakowitz

National Bureau of Standards, Department of Commerce, Washington, D.C. 20234

and

E. B. Berman

Edward B. Berman Associates, Inc.

I. introduction

The Congress, in Senate Report 94-328 (PL 94-121), directed the National Bureau of Standards "to embark upon a study of the economic effect of corrosion." Initially, NBS concluded

that the essential elements of such a study were to:

* Review previous attempts to assess metallic corrosion costs;

" Develop a detailed plan including definitions and methods for acquiring, analyzing and

reporting data; Expose the study plan to criticism by experts in corrosion and economics from industry

and Government; and

" Elicit cooperation from industries and Government agencies which use corrodible equipment, including vehicles and structures. NBS, a technical organization with extensive expertise in corrosion control technology,

conducts research on prevention of metallic degradation and develops methods for testing metals and alloys for corrosion resistance. This program has made major contributions to corrosion

control technology since the establishment of NBS in 1901 by direct special funding by the Congress. However, the NBS corrosion group had not conducted economic analyses in the past. For this reason, the analysis required in this study was placed under contract to Battelle Columbus

Laboratories. BCL personnel have expertise in both economic analysis and corrosion control

practices. The overall study was conducted jointly by BCL and NBS. Its goals included the development of a definition of the economic effect of corrosion from the standpoint of both a monetary loss to the economy and a consumption of materials that would not otherwise be

1
required and the determination of both materials and dollar savings that could be realized by more

effective control of corrosion. Upon completion of the review of previous work and formulation of

a study plan, an advisory panel was formed to review the plans and to suggest methods for acquiring the necessary data. The advisory panel consisted of corrosion experts from industry.

Government, and universities. The panel members, who are listed in the Acknowledgments section of this report, met at all-day review sessions with the BCL/NBS study team on four separate

occasions. Like any broad interdisciplinary study, determination of the economic effects of corrosion in the United States is a complex task requiring the assistance of skilled professionals from many

different scientific, engineering, and economic fields. It is also subject to uncertainties, especially

in those quantities which are difficult to separate from other degradative phenomena such as wear

or fracture. For this reason, the National Bureau of Standards has proceeded cautiously and

sought a broad base of input, advice, and support for its approach. In this final report we transmit not only cost data but also a detailed description of how these data were obtained and analyzed. In

this way, we hope to provide information which will be useful both to Congress and to our

colleagues in the scientific and technical community.

I.A. Previous Studies

A number of assessments of national corrosion costs have been carried out in several

industrial nations. In some instances, corrosion losses in a country are merely asserted by an

author with no reference as to how the costs were computed. In other cases, major data gathering

and interpretation efforts were made. In some cases, a single authority has attempted to analyze

corrosion costs in terms of his knowledge of corrosion minimization policies and industrial practices in a specific country. A brief review of the previous studies follows.

Union of Soviet Socialist Republics

In 1969, losses were stated to be six billion rubles ($6.7 billion, 1969 basis) or about 2

percent of the Gross National Product (GNP) for the entire USSR [1].* No indication as to what this figure includes or how it was computed was provided.

German Federal Republic

For the period 1968-69, total losses were asserted to be 19 billion DM ($6 billion, 1969

basis), while avoidable costs were asserted to be 4.3 billion DM ($1.5 billion, 1969 basis) [2]. No

indication as to what these figures include or how they were computed was provided. Total costs are about 3 percent of the West German GNP for 1969, and avoidable losses are roughly 25

percent of total costs. These figures, with respect to GNP and percentage of avoidable cost, are in good agreement with figures from other nations.

Finland and Sweden

Costs to Finland for the year 1965 have been estimated at 150 to 200 million Markaa ($47

million to 62 million, 1965 basis) [3]. Linderborg referred to these losses in an article describing

factors which must be taken into account in assessing corrosion costs to the Finnish nation [4]. In his paper, Linderborg recognizes the issues raised by variable lifetimes for a variety of

items. The specific example of the automobile is used to illustrate this point. Linderborg also quotes a partial study of corrosion costs in Sweden in which painting expenditures to combat

corrosion were analyzed for the year 1964. These costs were found to be 300 to 400 million Crowns ($58 million to 77 million, 1964 basis) of which between 25 and 35 percent were found to be avoidable [5].

• Figures in brackets indir-ite literature references, p. 33.

2
United Kingdom

A 25-member committee headed by a corrosion expert was constituted by the Minister of Technology in the United Kingdom in 1969 to determine the cost of corrosion. This committee

comprised a large number of subpanels and apparently was authorized to make detailed inquiries

and to obtain confidential information. The committee contacted 800 industries in the country and all government departments, in addition to holding discussions with corrosion protection companies and corrosion consultants. The

industries gave confidential information from their records on the effects of corrosion, including

the amount of shut-downs, rejection of canned foodstuffs, other product losses, structural failures, and the loss to industries from these. The committee took a weighted mean of each loss for a number of units and multiplied this by the total number of units in the country. To this, the committee added the costs of items replaced because of corrosion, expenditures on corrosion

protection, and information services, research, and development in the various industries. Thus, it arrived at industry-wide cost of corrosion estimate [6]. The results, shown in Table 1, indicate losses to the U.K. of £1.365 billion ($3.2 billion) for 1969-70. This amounts to about 3.5 percent of the GNP of the U.K. for that period. In

addition, the committee found that some £310 million or 23 percent of this total figure was

potentially avoidable. Table 2 shows the committee's view of the estimated potential savings and

suggested avenues to achieve these. The committee did not provide quantitative estimates on the uncertainty of its findings.

However, its report heightened awareness of corrosion problems throughout the nation. Indeed, an

informal conference was held in 1971 to discuss the report. Six sessions were held, one for each

section of the report [7]. These discussions are an invaluable supplement to the committee report. The work of the committee led directly to the establishment of a National Corrosion Service which provides "hot line" information to those with corrosion problems. In addition, in response

to the committee report, a Corrosion and Protection Centre for Industrial Services (CAPCIS) was

founded. CAPCIS acts as a central supplemental source for industrial corrosion research. At

present, CAPCIS carries out ten to twenty tasks per month; the job "gestation period" is about one month.

The government of the United Kingdom also established a Corrosion Research Center at the University of Manchester to provide a place where industrial clients could turn for aid in solving

specific corrosion related problems. The Center carries out research and tests for corrosion on a reimbursable basis. The government provides funds for some of the Center's expenses.

Table 1. National Cost of Corrosion and Corrosion

Protection in the U.K.

Industry or Agency Estimated Cost, £M

Building and construction 250

Food 40

General engineering 110

Government departments and agencies 55

Marine 280

Metal refining and semi-fabrication 15

Oil and chemical 180

Power 60

Transport 350

Water 25

Total 1365

•After Ref. (6).

3
Table 2. Potential Savings in the U.K. through the Use of Better Corrosion Protection Technology*

Estimated

Potential Saving Changes Required to Achieve

Industry or Agency £M % Savings

Building and construction 50 20 More awareness in selection, specification and control of application of protectives. Food 4 10 More awareness in selection of equipment and protection methods. General engineering 35 32 Greater awareness of corrosion hazards at design stage and

throughout manufacture. Government departments 20 36 Mainly on defense side by better design and procedures. Marine 55 20 Improved design, awareness and

application. Metal refining and semi- 2 13 Improved awareness in plant and

fabrication product protection.

Oil and chemical 15 8 Improved effectiveness in selection of materials and protection. Power 25 42 Greater use of cathodic protection and improved awareness at design

stage of operating conditions. Transport 100 3 Change of exhaust system material and improved awareness at design

stage. Water 4 16 Improved awareness of corrosion and protection.

Total 310 22.7

•After Ref. [6).

4
India

For the period 1960-61, the cost of corrosion to India was estimated at 1.54 billion rupees ($320 million, 1961 basis) [8]. This was based on calculations of expenditures for certain measures to prevent or control corrosion including direct material and labor expenses for protection, additional costs for increased corrosion resistance or redundancy, costs of information

transfer, and funds Spent on research and development. Table 3 shows the results. No quantitative estimate of uncertainty was attempted nor were avoidable and unavoidable costs broken down.

Australia

For 1973, the direct costs of corrosion were estimated at A$470 million ($550 million,

1973 basis) [9]. Table 4 shows the factors used in developing this figure. The authors comment

that these costs are "probably too low." Some additional direct costs—mostly labor—for the mining, transportation and communications industries were unavailable. Only muffler corrosion was considered as contributing to automobile losses. Lifetimes were not taken into account

quantitatively. The cited figure of A$470 million was 1.5 percent of Australia's GNP for 1973.

However, since indirect costs may equal or exceed this figure, total corrosion costs to Australia are estimated to be about 3 percent of GNP. No quantitative effort was made to assess uncertainties nor to separate these costs into avoidable and unavoidable components.

Table 3. Cost of Corrosion Control in India (1960-61^

Industry Cost, Rupees

Paints, varnishes and lacquers'* 40.0X10'

Zinc for galvanizing' 5.7 Tin for tin plate' 11.3

Electroplating 10.0

Nickel and its alloys' 1.0 Copper and its alloys' 50.8 Lead and its alloys' 3.3

Stainless steel' 22.4 Aluminum' 8.3 Prevention of corrosion in Internal Combustion Engines 1.0

Total 153.8X10'

'K. S. Rajagopalan, Journal of Scientific and Industrial Research^ 17, No. 5 (1958), 191-93.

''Including labor cost (descaling, preparation of metal surface and application). ^Including cost of fabrication.

5
Table 4. Annual Australian Direct Loss by Corrosion, Including Cost of Corrosion Control*

Industry

Loss, A$

Paints, varnishes and lacquers for protecting metals, based on 0.35

total consumption (year ended June 1970) Labour costs of application

Phosphate coatings: materials and application: Automotive industry Appliance industry

Galvanised steel production 537,400 tonnes (1972) at $29.53/tonne differential Tin and teme plate production 322,000 tonnes tin plate (1972) at $187/tonne differential 6100 tonnes teme plate (1972) at $59/tonne differential

Cadmium electroplate 119,800 kg produced (1972), 50% for electroplating: 59,900 kg at $6.39/kg

Application cost (based on Ni application cost): $20.46/kg

Nickel and nickel alloys Electroplate: 862,900 kg (1972) at $2.48/kg

Application cost: $20.46/kg

Nickel and nickel alloy consumption other than electroplate and stainless steels (year ended June 1972)

Copper and copper alloys 21,600,000 kg of copper and alloy pipe and tube (year ended

June 1972) at $0.99/kg differential

$ 45,300,000

135,900,000

1,415,000 542,000

60,230,000 360,000

383,000

1,226,000

2,140,000

17,600,000

10,647,000

$181,200,000

1,957,000

15,870,000

60,590,000

1,609,000

30,387,000

21,400,000

Stainless Steels 36,033,000 kg (year ended June 1970) at $1.21 /kg differential 43,600,000

Boiler and other water conditioning: Chemicals

De-aerators

Salaries and wages

Underground pipe maintenance and replacement: Water Gas

Oil refinery maintenance

4,000,000 840,000

700,000

63,900,000

8,020,000

5,540,000

71,920,000

1,140,000

Domestic water heaters 111,000 replacements (1972) at $150 each 16,500,000

Automobile muffler corrosion 600,000 mufflers per year replaced at $25 each (incl. materials and labour) 15,000,000

Grand Total $466,713,000

From: The Journal of The Institution of Engineers, Australia, March-April 1974

•After Ref. [9].

6
Japan

A survey [10] of the "direct" costs of corrosion in Japan, enumerated in Table 5, was

conducted in 1976-1977. The annual cost of corrosion was found to be 2500 billion yen ($9.2

billion, 1974 basis), which amounts to 1.8 percent of the Japanese Gross National Product. The

"indirect" costs might increase the total by several times.

Previous U.S. Studias

Uhlig [11] carried out the first detailed assessment of the costs of corrosion in the U.S. He

obtained a value for the total direct corrosion losses of $5.5 billion for the late 1940's. Using an

approach similar to Uhlig's, NBS did a preliminary in-house survey in 1968 to develop data on

corrosion costs in the U.S. The results, while widely quoted and misquoted, were never published.

The most recent study was carried out by the National Association of Corrosion Engineers

(NACE) [12]. The results led to estimates of the cost of direct expenditures to NACE members of $9.67 billion for 1975. Table 6 shows the breakdown for these costs. The results are based on

replies of 1006 persons to a questionnaire developed by NACE. No uncertainty estimate was made

for these data and no critical review of the responses to the questionnaire was carried out. In summary, the fact that so many countries have attempted to assess their national corrosion costs points up the worldwide awareness that corrosion can be a serious economic

concern. These studies, however, were incomplete and made no effort to assess the uncertainties associated with their reported results. Rather than being a criticism, this highlights the attempt by

the present study to look at the entire economy of the nation as well as to estimate the

uncertainties in the reported numbers.

Table 5. Estimate of Cost of Corrosion Prevention in Japan

in 1976 Based on Production and Manufacturing Sectors*

PercenUge of 2500 Billion Yen Total

Surface Coating 62.55

Surface Treatment 25.39

Corrosion-Resistant Materials 9.36

Anti-Corrosion Creases 0.61

Inhibitors 0.63

Electrolytic Protection 0.62 Research 0.84 100.00

•After Ref. [10].

7
Table 6. Total Corrosion Expenditures According to NACE Survey for All Industry

Classifications and All Regions of the United States*

Actual $ $ Extrapolated Provided by to Entire '*User** Respondent NACE Membership

($1000) ($1000)

Costing Applicfltion Services fiCiZ CIA

(Including Surf&ce Prep&r&tion Service) Externsl Pipeline Coatings, Underground CO 7A/I JO, /04' Internal Pipeline Coatings Marine Coatings, Sea W^ater Exposure

A tmnann^rif* i rtnt'in (tq PInnt Si TnHiiQtrifll KYnriQiirp 101 111 CIO i^l1, 117 1 1 /

T ininoTQ Intpmnl ^iirffirP4 nr Taiikq A v poflpla 38,475 on!? nfl/l %f\af\nef Inatnimpntntmiri ^.lUciiiiig iiisiruiiicuuiiiuii 2 935 1 '17'; 10,0 1 o

\C mil 1 111LILI1C99 Vralics, nuIlUaV L/clCdUlS, out laUC 1 lUllIC ^agC9, CLCJ 1 343

I <^atin<T 1 rknaiilt^nfT ^Prvi/^PQ 7 343

Surface Preparation Equipment 15,837 83,532

(Sandblasting, Water Blasting, Shot and Grit) Galvanizing and Metallizing Services 30,549 195,881 TOTAL 565,511 2,907,433 LUIxKUolUiN liilllDX iUtiO

Oil Soluble Types Water Soluble Types 791 loo, /al Vapor Phase Types

Inhibitor Instrumentation 9Q OQQ

lOYV{rpn AnptPTQ IVnIviinif* I^pI iq TnQtnntflTipmia l^nnTtmnTi K Atp Measurements, etc.) Inhibitor Consulting Services 2,872 15,244

Inhibitor Testing Services 842 4,548 TOTAL 62,678 340,834

PATl-inniP \jAirlUUll-- PRnTFPTIAN rilUl Ci(_.l lUlN Anodes 4',010 9/1 Q^O

i>acKiiii Zo,UOD 1 AA AHA

Galvanic ft9 A70

R a/>1'iTiPT*c 5 862 30 790 CP Installation Services 23 432

IVjITP IIISII 1 not'i'iim UIllCllUlllUIl Antatmn 1,848 13 900

(Pipe Locators, Reference Electrodes, Voltmeters, Ammeters,

Current Interrupters) CP Consulting Services 5,276 27,870 TOTAL 85,061 447,805 FIBERGLASS & PLASTIC MATERIALS 85,879 453,196

(Piping, Tanks, Pumps, Valves, etc.) CORROSION RESISTANT METALLIC EQUIPMENT 1,049,629 5.424,198

(Valves, Pumps, Tanks, Vessels, Scrubbers, Ducts, etc.) METALS TESTING & ANALYSES

Metal Nondestructive Testing Services 8,899 47,216

Tubing & Casting Testing Services 5,853 31,021

Metal X-ray Analysis 4,021 21,235 TOTAL 18,773 99,472

TOTAL EXPENDITURES 1,867,533 9,672,529

•After Ref. [11].

8
i.B. Legislative History

On July 15, 1974, Senator John V. Tunney of California wrote [13] the following letter to Senator John 0. Pastore, Chairman of the Subcommittee on State, Justice, Commerce and

Judiciary:

Dear Mr. Chairman:

I know of your deep concern about the rapid depletion of this nation's vital materials resources. Your Subcommittee could take an important step to help

ameliorate this problem in the area of corrosion prevention.

According to recent estimates by The National Commission on Materials Policy, the United States loses about $15 billion annually due to the cost of corrosion. This

loss to our economy is more than the entire cost of floods and fires in the United

States. In fact, it has been estimated that 40% of the U.S. steel production goes to the replacement of corroded parts and products and our oil industries are spending over a

million dollars a day due to corrosion of underground structures. The United States government alone sustains 10% of this enormous corrosion

bill. This means over $1.5 billion annually or more than 20 times the entire budget

for The National Bureau of Standards is currently being lost by the government due

to corrosion. The National Commission on Materials Policy states that an estimated 5 billion dollars of this nation's 15 billion dollar annual corrosion bill could be saved with the

application of existing knowledge and technology.

Furthermore, corrosion prevention is not only a matter of monetary savings but

has a significant impact on safety and health. Corrosion has felled bridges, sunk

ships, caused pipelines to explode and even caused airplane crashes. It also in conjunction with pollutants has aided in causing health hazards. Although corrosion is not a problem with a 100% cure, it is an indisputable fact that by using present knowledge more effectively we can diminish its damaging effects and help save our resources while in the process recovering billions of dollars presently being lost. Unfortunately, despite these opportunities this problem has not been

systematically and thoroughly analyzed in the United States. Informal discussions with members of the National Bureau of Standards and

specialist groups in the field indicate that such a study would be extremely useful. Therefore, I strongly urge your Subcommittee to appropriate $250,000 for use by the National Bureau of Standards to enable a study to be conducted on the economic costs and benefits of corrosion prevention and to make recommendations to the Congress on the measures to be taken to decrease the loss of materials through

corrosion. This figure has been suggested by a number of specialists as adequate to carry out such a study. The study in my view should be composed of an

interdisciplinary team such as experts from the fields of metallurgy, chemistry, and

economics and should be submitted in approximately eight to twelve months.

A mere 5 to 10% increase in materials effectiveness in this field means savings

to the country of immense proportions and the potential impact on our vital resources makes it mandatory that we take action now.

I look forward to hearing from you on this matter.

Sincerely,

(Signed)

JOHN V. TUNNEY

United States Senator

9
Subsequently, the National Association of Corrosion Engineers (NACE) and the Federation

of Materials Societies wrote a joint letter to Senator Tunney thanking him, affirming their support,

and stating that the proposed study would provide a major step toward a national program to reduce "wastage of materials." The fiscal year 1976 Appropriation Act for NBS, Senate Report 94-328 (PL 94-121),

directed that "The National Bureau of Standards shall embark upon a study of the economic

effects of corrosion." This report is the response to this Congressional mandate.

I.e. Corrosion Costs: Concepts and Definitions

Costs associated with corrosion include items such as material and labor expenditures

associated with painting, applying cathodic protection, coatings, and use of inhibitors. Replacement costs and lost production may be partially assessed as losses due to corrosion. Extra

material and labor for prevention are also expenses to be included. In addition, corrosion costs include funds spent on information and technology transfer as well as on research, development

and demonstration of methods to minimize the deleterious effects of metallic degradation. A key

factor in assessing macrocorrosion costs in a sector of any economy is the lifetime and replacement

value of a given component subject to damage by corrosion. A complete list of the elements of the

costs of corrosion and their treatment in the I/O model is given in Table I of the BCL Report. A

simplified version of this table is given in Table 7 here.

Table 7. Some Elements of the CosU of Corrosion*

Capital Costs - Replacement of equipment and buildings - Excess capacity - Redundant equipment

Control Costs - Maintenance and repair - Corrosion control

Design Costs - Materials of construction - Corrosion allowance - Special processing

Associated Costs - Loss of product - Technical support - Insurance - Parts and equipment inventory

'A more complete list is given in Appendix B, Table I.

For an individual industry or sector of the economy, knowledgeable design engineers will usually select the cheapest material which will withstand the expected corrosive conditions for a

preselected "lifetime of the product." This procedure, involving the use of discounted cash flow (DCF) analysis, is rather straightforward and is invaluable for equipment selection. However, in the case of many items manufactured for mass retailing such as automobiles or housing,

application of the DCF procedure may not optimize the economic benefits of corrosion over the whole system consisting of manufacturer, wholesaler, retailer, and consumer. A more subtle example of corrosion costs is possible delay or other difficulty in obtaining

the optimum material. Under pressure of construction and/or installation deadlines, a more

corrosion prone material may have to be substituted. If the latter fails prior to design lifetime, a

10
production system may be shut down. The failure of the market to provide the optimum material thus can lead to direct and indirect corrosion costs through all sectors of the economy affected by

this productivity decrease. Public policy may impose extra corrosion costs as a trade-off against property damage or

loss of life. The case of heavily salted roads in winter in certain areas serves as one instance. Automobile purchasers in such areas may opt for additional corrosion protection for the bodies of

their cars. As a second example, use of the environment as a dumping ground for effluent contributes to extra maintenance or shortened lifetimes for structures such as bridges, rails, cables and buildings.

The total national cost of corrosion as used in this study is defined as the difference in Gross National Product between two worlds, a modified real world of corrosion (World I) and a hypothetical world in which corrosion does not exist (World II). The year 1975, modified by

raising it to a hypothetical full employment level of economic activity, was used for World I.* To estimate the avoidable costs of corrosion, another construct. World III, was formulated. World III is a hypothetical world in which the economically best corrosion prevention practice is used by everyone. The difference in Gross National Product between World I and II, the total national cost of corrosion, represents resources that could be useful for other goods and services if there were no corrosion. Similarly, the difference in GNP of Worlds I and III signifies resources which would be available if economically best preventive practices were used throughout the economy and represents the total national avoidable costs of corrosion. The GNP difference between Worlds II and III measures presently unavoidable costs. Worlds II and III are, of course, not worlds of full employment, but they do represent the year 1975, as does World I. All three worlds were evaluated under an assumption of a steady rate of growth which varied from sector to sector. In World III, best practice corrosion technology was defined, not as that practice which

reduced corrosion, but as that which minimized its lifetime capital and operating costs, with an

appropriate discount rate. The cost of acquiring capital funds is not the same for larger and

smaller firms in the same industry, so that best corrosion practice is not necessarily the same from

firm to firm. In all three worlds, the same level of usefulness of goods and services to the public was

assumed. Thus, for example, fewer end items were delivered to consumers in Worlds II and III. Because those delivered spent less time in maintenance or lasted longer than in World I, fewer

items were needed to provide the same level of services to their users as the larger number

delivered in World I. The input/output approach used in the present study has the advantage of capturing all direct and indirect costs of corrosion through the creation of a total economic model for each of

the three worlds. Direct costs include all reductions in the requirements for inputs for production

which would become possible if there were no corrosion as in World II or best practice corrosion

as in World III. These include flow inputs (e.g., pig iron into steel), capital inputs for expansion

and replacement of capacity (e.g., blast furnaces for steel), and value added. The direct flow effects include reduced maintenance costs and the use of less expensive materials for embodiment in outputs. Among the direct capital effects are the reduced need for equipment due to less time

down for maintenance and the lower replacement cost because of increased equipment life. The

value-added effects include reduced costs of labor and lower depreciation allowances for the smaller capital requirements. The indirect effects include two elements: (1) in addition to the reduced input requirements, the inputs also cost less, because of savings in their own and earlier production processes and (2) the general interactive effects of reductions in production levels on

one another.

'The full employment modification was used in order to account for all possible corrosion costs. Full employment was defined in terms of an extrapolated trend fitted

to peak values of real CNP per person of age 18 through 64.

11
Value added is the additional value accruing to a product's ingredients as they are fashioned

into the product itself. It includes wages, salaries, rents, profits, interest, taxes, and depreciation.

It can also be defined as the value of the productive factors contributed by the industry itself, rather than those purchased from other industries.

i.D. Input-Output (I/O) Model

A number of characteristics make input-output analysis, pioneered by W. W. Leontief, and

the modified Battelle model well suited for use in estimating the total direct and indirect costs of

corrosion. The model is quite detailed. In this study, it has 130 economic sectors and each is represented by a production function consisting of the respective inputs from that sector plus value added. As a result, relatively detailed industry corrosion cost data may be incorporated into the model for simulation purposes. The complex structure serves as a guide for the precise analysis of corrosion costs and a means for integrating the results. The model is comprehensive. It has sufficient components to allow all the contributions to corrosion costs (production expenses, capital cost, reductions in replacement, and excess capital

capacity, for example) to be considered in the analysis. Because of the model's structure, all of these aspects, and their interactions, may be evaluated in a coordinated and systematic manner. The model is simultaneous and, therefore, able to account for both direct and indirect

effects of certain changes in the economy. This is critical to estimating the total costs of corrosion

to society. Because the model simultaneously determines equilibrium values, comparative static analysis (i.e., comparison of alternate growth scenarios at the same moment in time) is an obvious

application. For example, the costs of corrosion in the existing world (World I) are compared to those in each of the two hypothetical worlds mentioned previously-—World II in which no

corrosion exists and, thus, the costs are zero, and World III in which "best practice" corrosion

control methods are employed.

Finally, since the model consists of the process sectors described in terms of "ex ante"'* parameters, it is well suited to "ex ante" changes describing Worlds II and III. The process

orientation allows technical experts to concentrate on specific production processes necessary to produce a given output. The "ex ante" derivation of parameters frees these experts from the burden of statistical analysis for which little or no data exists. Input-output is weakest where the coefficients (i.e., the input requirements per unit of

output) change as a result of model solutions. For some purposes, such as modeling the adjustment

to a disruption in supply, process alternatives must be offered under the control of a pricing

system or through linear programming or another kind of optimizing model. For the purposes of

the corrosion study, no such need exists. Each of the three worlds for which the input-output

model was established represents a stable condition of steady growth at full employment—stability within each world, but not among them. Under these conditions, the stable coefficients required

for an input-output model are reasonably assumed.

I.E. Operation of the Data Survey

The use of the I/O model to determine the cost of corrosion required the collection of the following data:

(a) For the "A" or flow matrix—inputs to make a product.

(b) For the "B" or capital/ output matrix—capital equipment needed to produce a product.

(c) For the replacement rate matrix—replacement lives of the capital equipment.

(d) For the final demand vector—final demands for the product.

'The "ex ante" procedure for estimation relies upon expert knowledge and judgment rather than data surveys and statistical analyses. Through adoption of this approach, all available data can be assimilated and applied to determine necessary parameters.

12
These data were collected by grouping like industries (usually viewed as a producer but sometimes as a user of goods) and assigning the groups to an individual data gatherer. The results of the data collection are assembled in Appendix C. The U.S. economy as represented by the SIC classification [14] and by the 130 sectors of the I/O model was divided into about 20 areas as listed on pages 67-107 of the BCL report. An

area or sector leader was responsible for gathering data in his sector. These are shown in the Acknowledgments (Part V of this report). For example, a typical sector was wood and paper

products, which included lumber mills, plywood, wood containers, lumber and wood products,

furniture and fixtures, pulp, paper and paper products, and paper board containers and boxes. Because all industries could not be studied with equal attention, priorities were assigned

based on the extent of the effect of corrosion on products or production processes. After identifying for each sector the World I coefficients in the matrices expected to be

affected significantly by corrosion, the data gatherers interviewed knowledgeable individuals in a

sector, reviewed the literature, and consulted technical experts. They determined the extent of changes that should be made in the World I coefficients identified as corrosion sensitive to change

them to World II and World III conditions. These collected data were reviewed and adapted by

BCL economists.

When the data were not available in a broken down form (sector by sector) but only as a

total cost, technical judgments based on knowledge of corrosion processes were used to distribute the costs to the various sectors involved. All data were then reviewed and adapted for the I/O

model. The final coefficient adjustments were made jointly by corrosion and econoniics experts.

II. Results

II.A. National Costs

The study separates the total costs of corrosion into avoidable and presently unavoidable

losses. Avoidable costs were defined as those amenable to reduction by the most economically

effective use of presently available corrosion technology. For the base year 1975, total costs of

metallic corrosion (materials, labor, energy, and technical capabilities) were estimated by BCL to be $82 billion, 4.9 percent of the $1677 billion Gross National Product (GNP). Approximately 40

percent of this ($33 billion, 2.0 percent of GNP), was estimated to be avoidable. NBS has analyzed

the uncertainties in these estimates (Appendix A). Based on the BCL results and the NBS

uncertainty analysis, the total national yearly cost of metallic corrosion is about $70 billion (4.2 percent of GNP), with an uncertainty of about ± 30 percent.' The currently avoidable cost of

corrosion was found to be roughly 15 percent of the total, but could run from 10 to 45 percent.

The error in the avoidable cost is greater than that in the total. As BCL noted in their report, the treatment of useful lives contains the greatest uncertainties in their results. We concur in this judgment, noting that, in particular, the choice of

lifetimes for the automobile leads to a large effect on the total corrosion costs. NBS has estimated

the magnitude of this effect under different assumptions of automobile lifetimes. The complete

analysis, including other effects, leads to the values above as reasonable estimates. In the BCL study, the total costs were allocated to the various sectors of the economy. A

series of industry indicators provided by BCL (Table 8) expressed corrosion losses on a dollar basis and as cost per unit of sales for the total and avoidable costs of both direct and direct plus

indirect costs. The largest 25 values in each column in Table 8 are numbered in order of decreasing magnitude.

'The indirect effects of systematic errors specified in Appendix A on intermediate output and rapiul costs of corrosion have been ignored. The dowiward effect this would have had on corrosion cost estimates is assumed to be compensated for by the various upward effects noted in the BCl. report. Section .5.3.4. (See Section 4.3 in Appendix A.)

13
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A summary of differences in final transactions in dollars (social savings) provided by BCL is given in Table 9 for both the total and avoidable costs of corrosion along with the percentage of corrosion that is avoidable. The industry sectors that produce the final demand items are listed in Table 10. This table also contains a listing of intermediate costs (intermediate output social savings). When these costs are subtracted from the direct industry indicators (Table 8), the

residual is approximately the capital costs of corrosion to the various sectors. We believe that values for those industries showing the highest capital costs of corrosion have been overestimated.

Table 9. Major Components of Metallic Corrosion Costs*

Total Costs Avoidable Costs

of Corrosion of Corrosion Avoidable/Total (M $) (M $) %

CotX of Corrosion 82,264.3 32,942.6

Total Intermediate Output 24,447.0 2,043.1 8

Total Final Demand 57,817.3 30,899.5 53

Personal Ginsumption Expenditures (PCE) 22,759.7 15,880.2 70

Private. Fixed Gipital Formation (PFCF) 24,089.2 12,457.0 52

Exports 0 0

Federal Government Expenditures (FGE) 8,062.2 1,655.9 21

State and Local Government

Expenditures (S/LGE) 2,906.2 906.4 31

Net Inventory Change 0 0

*DaU from Appendix B. See Appendix A for NBS estimate of uncertainties and reestimation of these values.

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20
II.B. Special Area Costs

II.B.1. Federal Government

The Federal Government owns a large amount of capital equipment that is subject to corrosion. Maintenance, repair and replacement expenses resulting from corrosion of that equipment represent a significant proportion of the total U.S. cost of corrosion. However, since each agency has custody of its own equipment, maintenance and other costs would have had to be

obtained from each. Many agencies are well aware of corrosion problems, and some important

studies of corrosion have been performed, but no overall investigation or careful government-wide

estimate was uncovered in this study. Given the time and resource limitations of the present

analysis, we decided to examine those agencies that owned the largest amounts of capital

equipment. A government-wide result was obtained by scaling these data. Data were obtained from the three services of the Department of Defense (DOD), National

Aeronautics and Space Administration (NASA), Coast Guard, Government Services Administration

(GSA), the Legislative Branch, and National Bureau of Standards (NBS). Maintenance and repair

costs for these agencies came from various sources. In a few cases, corrosion costs were found, but

generally, careful estimates of the fraction of losses due to corrosion were required. The total capital items considered here were estimated by BCL to represent $650 billion (97.6 percent of those owned by the Federal Government). They include real capital (buildings and structures, for example) and "personal" capital (aircraft, ships, and ordnance, for instance). Corrosion cost information was determined in our study for 83.4 percent of the total capital owned by the Government. Costs for the remainder were then estimated. Information on aircraft was obtained from the Air Force, Navy and Coast Guard. The total Federal capital in aircraft was estimated by BCL to be $195 billion. The annual corrosion maintenance costs of these was estimated to be $990 million. Lifetime in service was judged to be

unaffected by corrosion, but rather determined by obsolescence. However, a redundant excess of

aircraft of 5 to 8 percent results from the influence of corrosion on aircraft downtime.

Detailed maintenance records were available for ships in both the Navy and Coast Guard

fleet; however, corrosion-specific actions were not identified. Certain assumptions regarding the proportion of corrosion-related work at the fleet, tender and shipyard repair levels were made. In summary, the Coast Guard annual corrosion cost was $7.5 million and the estimated Navy cost was $392 million for a total cost of about $400 million for ships, which is 0.7 percent of the estimated Federal capital in ships of $56 billion. Real property (buildings, structures) comprises 36 percent of the total Federal capital. The

inventory is quite variable, with ten types of buildings and sixteen types of structures. Because it was not possible to examine the corrosion costs in all cases data from DOD, which owns about 70

percent of the Federal buildings and structures, was used to deduce total losses. A thorough study

of corrosion-related maintenance at seven Army and Air Force installations had been previously

conducted by Hahin [15], and the results were used here. The corrosion fraction of maintenance

found in that study was used together with published maintenance costs for the DOD groups. The

annual DOD corrosion maintenance costs were calculated to be $280 million. Data were also gathered from the Coast Guard, NASA, GSA, and NBS, and total Federal real property corrosion

maintenance costs were determined to be $375 million annually.

Combining the expenses for aircraft, ships and real property leads to an annual maintenance

corrosion cost estimate of $1,775 billion on 84 percent of all Federally owned capital. Based on

that, a total cost of corrosion maintenance in the Federal sector is estimated to be about $2 billion annually.

To determine the full effect of corrosion in the Federal sector, costs caused by the need for redundant capital and by shortening of equipment lifetimes due to corrosion must also be

included. For example, in the case of Federally-owned aircraft, there is no estimated change in

lifetime, but there is an estimated 6 percent capital redundancy. This causes a yearly capital

redundancy cost due to corrosion of $2.4 billion, as compared to a yearly maintenance cost of

21
$986 million. In other cases, such as automobiles, there is little redundant equipment, but the

lifetime is shortened. When these considerations are applied to all the capital equipment of the Federal Government, a capital cost of $6 billion is determined, in addition to the $2 billion in maintenance expenses. These corrosion costs together amount to about 2 percent of the Federal

budget. Of the $8 billion total costs of corrosion to the Federal Government, about 20 percent is estimated to be avoidable.

II.B.2. Personally Owned Automobiles

The principal expenses of corrosion in the ownership of an automobile are associated with

the degradation of components made of the iron and steel which comprise approximately 80

percent of the weight of an auto. These costs may be separated into three parts:

(1) Costs of built-in protection against corrosion included in the purchase price. These

include payment for a wide range of features such as more expensive materials, special

designs and coatings, and corrosion inhibitors.

(2) Those portions of maintenance and operating costs attributable to corrosion. This

includes replacement of components such as mufflers, tailpipes and radiators, repair

and painting of corroded parts, and replacement of coolants.

(3) Costs of premature replacement of autos. Since corrosion reduces the market value of a

car, autos are generally discarded and replaced more frequently than would occur in the absence of corrosion. Often, the decision to scrap an auto is made when the

potential costs of engine repairs, parts replacements, or repair of damage incurred in an accident are too large compared to the current market value of the auto to justify

such expenditure.

Among the expenses incurred in accident-free auto ownership, some, such as muffler replacement, would not occur to any significant degree in the absence of corrosion. For other

costs, like painting, protection against corrosion is only a part of the overall expense. In such

cases, attribution of expenses to corrosion can usually be made by experts with reasonable

accuracy.

Finally, some costs are undoubtedly larger because of corrosion, but attribution of these to corrosion is, of necessity, largely a matter of subjective judgment. For example, the average

lifetime of autos does not depend solely upon auto condition, but is a complex function of rates of

deterioration, accident frequency, maintenance costs, new car prices, used car demand, styling and new features, and general economic conditions. Though corrosion may be a significant factor in rates of deterioration, it is not fully separable, in the economic sense, from other forms of

deterioration. Nor can deterioration itself be given an exact quantitative significance relative to the other variables involved in lifetime. Estimates of the cost of corrosion for personally owned autos appear in two parts of the BCL

report: in the input/output model and in Appendix C of that report. The latter summarizes

available data and conclusions of some previous studies. As with the overall study, the sections on

the auto rely upon available data and estimates made by technical experts. The major differences between the two treatments of the auto in the BCL report are in the treatment of useful lifetimes and in the discussion of approaches to reducing corrosion costs. In the input/ output model, useful automobile lifetime is treated explicitly in the form of input data and assumptions on replacement rates in the three worlds defined in the study. In particular, data

for the current practice World I, provided by IRS Bulletin F,* are given as a lifetime range of 2 to 20 years for personally-owned autos. The ranges used for the best practice World III, 8 to 20

years, and for the no corrosion World II, 10 to 20 years, represent assumptions on how lifetime ranges would shift under best practice and no corrosion, respectively.

*1RS BulletiD F gives other lifetime ranges for fleet or industrial uses.

22
In Appendix C of the BCL Report, auto lifetime is not treated explicitly, but estimates are given of body corrosion damage. Such damage, a key factor in auto deterioration, contributes to shortening of useful lifetimes, but cannot be regarded as an economic measure of shortened useful

lifetime.The discussion of approaches to reducing corrosion costs (Appendix C of the BCL Report) in the BCL appendix includes a variety of options: to alter the environment that contributes to auto

corrosion; to modify auto design; and to modify the materials of construction. In addition, there

are owner options—such as, washing, waxing, and undersealing—which may also reduce corrosion

costs. Modification of the environment, primarily by reducing the use of deicing salts, is not considered feasible at this time in view of the needs for highway safety and open roads during

winter. Moreover, poor results have been obtained in tests of alternative methods for removing snow and ice from roads. The BCL report concludes that modifications in design and materials

offer the best prospect for minimizing corrosion damage to autos. It also suggests that improved owner care of autos could also reduce corrosion costs. While the potential effectiveness of options

considered feasible was not discussed, the meaning of best practice implicit in the options

mentioned includes both the manufacturing practices of the auto makers and the maintenance

procedures of car owners. The BCL results obtained from the input/output model give the overall cost of auto

corrosion (see Table 8, sectors llAOl and 21.05 in PCE column) as about $17.5 billion of which

an estimated $13.8 billion is avoidable using best practice. The analysis of the personally owned

auto in Appendix C to the BCL Report gives the total cost of auto corrosion as about $5.9 billion of which about 2.2 billion is avoidable.

In the input/output treatment of auto corrosion, premature replacement of autos accounts

for $15.4 billion, or about 90 percent of the total. The remaining $2.1 billion represents

replacement of auto parts, coolants, and auto repairs. The latter generally agrees with

corresponding costs given in the BCL Report's Appendix C. However, premature replacement

($15.4 billion) is much larger than the most nearly corresponding term—body corrosion damage

($2.9 billion)—given in their appendix. Thus, the major difference between the two estimates

resides in the treatment of useful lifetimes. As indicated above, the calculation of replacement rates requires input data representing ranges of useful lifetimes for each of the three worlds. As shown in Appendix A of this report, the replacement rate is sensitive to changes in lifetime particularly for very short lifetimes. Thus,

corrosion loss estimates are most sensitive to assumptions regarding ranges of lifetimes under

current practice. For example, if this range were assumed to be about 4 or 5 to 20 years rather than 2 to 20 years, the replacement cost estimate would be reduced to about $8 billion.' Based

upon this analysis and given the uncertainties surrounding the estimation of lifetimes, a replacement cost of $4 to $12 billion is probably a more reasonable estimate than the $15.4

billioir discussed above. This revised estimate of replacement cost reduces the total cost of

corrosion derived from the input/output analysis to the range $6 to $14 billion, and the avoidable

losses to between $2 and $8 billion. Even after revision, the input/ output estimates of total and avoidable corrosion costs are

greater than those given in the appendix to the BCL report. As the latter analysis does not include

costs of premature replacement per se but does include estimates of the costs of body damage, one

factor in premature replacement, we conclude that the $6 billion total cost given in the appendix

of the BCL report should be considered a lower limit. The upper limit, as derived from

input/output analysis and modified in the error analysis carried out by NBS is estimated to be

about $14 billion.

* Other approaches to estimatiag replacement rates, for example, emphasizing the affect of corrosion on the longer rather than the shorter lifetimes in assumed lifetime distribution curves, yield similar results.

23
II.B.3. Electric Power

The electric power industry consists of two main segments: generation of electricity and

transmissioil and distribution of electricity. Corrosion problems for the latter segment, which are the same regardless of the type of generating plant, consist of atmospheric corrosion of structures above ground and underground corrosion of buried structures. There are five types of electric power generating plants: fossil fuel (coal, gas, oil, or wastefired), hydroelectric, nuclear, geothermal, and solar. The corrosion problems vary considerably

depending on the type. Corrosion failure of boiler tubes and turbine blades are prominent

problems in coal-fired plants. Gas-fired boilers are being phased out, but gas turbine plants suffer high temperature blade corrosion. Oil-fired units have the same steam-side boiler corrosion problems as coal-fired units, but their fire-side problems relate to vanadium and sulfur in the oil. Hydroelectric corrosion is similar to that found in the water and sewer sector. Geothermal

corrosion is serious, but total power output is small. Solar units are very small in total output.

Nuclear corrosion costs are large, in part due to the large price differential of replacement power

generated by fossil plants when the nuclear plant is down.

Direct corrosion costs are given by the I/O Model as $4.1 billion, with avoidable

expenditures of only $120 million or about 3 percent of total costs. This may be compared with

the Hoar report [6] estimates of £60 million total and £25 million avoidable, or 42 percent for the power industry. (Note that these U.K. figures do not include loss of plant revenues during

shutdowns.) The difference in these percentages is related in part to inclusion in the Hoar Power

Industry Sector of not only electrical power generation, transmission, and distribution, but also the

generation, transmission, and distribution of gas and the mining of coal. An example given in the Hoar report of an avoidable cost in gas distribution is the estimate of £8 million avoidable expenses due to corrosion of gas service pipes to dwellings. This is nearly one-third of the avoidable costs given.

Maintenance expenditures in the electric power industry due to corrosion are estimated to be about 10 percent of all maintenance costs in the areas of transmission, distribution, and

miscellaneous and about 50 percent of all maintenance costs in the area of generation of power. From these estimates, and from others by the industry of maintenance costs in the electric power

industry, the total annual corrosion maintenance costs are considered to be about $1.1 billion. Corrosion-related excess capacity is estimated to be 10 percent of total capital investment. Corrosion research costs are approximately $10 million. Best practice is not expected to change non-nuclear generation corrosion costs significantly. In nuclear plants, solutions to corrosion problems should result in major cost reductions. Some,

but not major, reduction in cost by best practice in transmission and distribution can be expected. For further detail, see the BCL report (Appendix B of the present report). The likely effects on corrosion costs of future developments in electric power technology are discussed further in Section III.B. of the present report.

II.B.4. Energy and Materials

The outputs of the BCL input-output analyses of Worlds I, II, and III were used to estimate the costs of additional energy and materials required because of metallic corrosion. Total national energy and materials costs of metallic corrosion were estimated from differences in total outputs

between World I and World II for the energy and materials sectors. Avoidable national energy and

materials costs of metallic corrosion were estimated from differences in total outputs between

World I and World III for the energy and materials sectors. To capture the corrosion impact effects on energy and materials as resources, the total outputs of the primary extractive sectors for non-renewable energy and materials resources were

used. Renewable resources, such as hydro-electric power, and agricultural, forestry, and fishery

products, were excluded from the analysis.

24
The energy and material costs of metallic corrosion were calculated in the form of dollar differences and percentage changes relative to World I. The costs of corrosion in energy and

materials, both total and avoidable, are always positive. In order to fit these costs into a meaningful context, the percentage changes for energy and

materials have been compared to the percentage changes in Gross National Product, the latter as a measure of the national average impact of metallic corrosion. In general, in percentage change the

costs of corrosion in energy have proved to be slightly less than the overall average costs to the economy, but the costs to coal sectors were slightly higher and the costs to the petroleum sector were slightly lower. The costs of metallic corrosion on the metallic ore sectors were found to be

several times higher than the national average, in percentage change.

The following sectors identified by BCL nomenclature were selected: To Represent Energy:

2A04: Underground Coal Mining

2B04: Strip Coal Mining

2C04: Other Coal Mining

2A05: Crude Petroleum

2B05: Natural Gas. These sectors are not a perfect representation of non-renewable primary energy. Thus,

uranium is omitted, whereas metallurgical coal and petrochemicals, which should be excluded, are

included. These imperfections in classification have a negligible effect on the analytical conclusions. To Represent Materiab:

2.01 Iron and Ferroalloy Ores

2.02 Copper Ores

2.03 Non-ferrous Ores, Except Copper

2.06 Stone and Clay Mining

2.07 Chemical and Fertilizer Mining.

Table 11 summarizes the results of the analysis of the national impacts of corrosion, total and avoidable on primary energy sectors. Table 12 summarizes the results of the analysis of these impacts on non-renewable raw materials sectors.

It is noteworthy that Table 11 shows the overall energy cost of corrosion to be relatively

low, 3.4 percent, which is a smaller proportion than the 4.2 percent of the Gross National Product

estimated as the total cost of corrosion. The overall avoidable energy impact of corrosion, at 0.6

percent, is almost the same as the percentage change of GNP for that case. Within the energy

sectors, there is more impact on coal than petroleum or natural gas. These results stem from the strong capital focus of corrosion, in contrast to the strong demand for energy products, and

particularly petroleum products, as consumables.

Table 12 shows the materials impacts of metallic corrosion to be relatively high. The overall

total impact of 10.7 percent for materials is two and a half times the percentage impact on Gross

National Product. The overall avoidable materials impact of metallic corrosion, at 1.3 percent, is more than double the percentage impact on Gross National Product. Within the materials sectors, the metallic corrosion effects are concentrated mainly on the metallic ores, sectors 2.01, 2.02, and

2.03. For those sectors, the impacts are 16.7 percent for total corrosion and 2.1 percent for avoidable corrosion. For the non-metallic minerals sectors, sectors 2.06 and 2.07, the impacts of

metallic corrosion are smaller, in percent, than the impacts of these sectors on Gross National

Product.The strong impact on metallic resources represents two factors: The substitution from more expensive metals to less expensive metals. The strong link of metal products with the capital sectors.

25
Table 11. National Impacts of Metallic Corrosion on Primary Energy Sectors

Total Output Levels in Differences in

Percentage Change From

Selected Sectors Million Dollars Million Dollars World I

Total: A VmHArtl A* World I World II World III World

I

- II

World

I - III

Total Avoidable

2A04: Underground Coal Mining 6254.5 5876.3 6016.3 378.2 238.2 6.0 3.8 2B04: Strip Coal Mining 5917.0 5568.3 5697.1 348.7 219.8 5.9 3.7 2C04: Other Coal Mining 236.5 217.0 224.1 19.5 12.3 8.2 5.2 2A05: Crude Petroleum 23,147.5 22,507.6 22,935.8 639.9 211.7 2.8 0.9 2B05: Natural Gas 6154.7 5901.0 6055.7 253.7 99.0 4.1 1.6

Toul 41,710.2 40,070.2 40,929.2 1640.0 781.0 3.9 1.9 Recalculated Total 1400.0 24«.5 3.4 0.6

*Data from Appendix C, except recalculated line, which is scaled from these in accordance with the results of Appendix A.

Table 12. National Impacts of Metallic Corrosion on Non-Renewable Raw Materials Sectors*

Total Output Levels In Differences In

Percentage Change From

Selected Sectors Million Dollars Million Dollars World I

Total: Avoidable: Total Avoidable World I World II World III World

1 - II

World

I -III

2.01: Iron and Ferroalloy Ores 4941.0 4351.4 4498.8 589.6 442.2 11.9 8.9

2.02: Copper Ores 1495.1 774.2 1443.2 720.9 51.9 48.2 3.5

2.03: Non-ferrous Ores Except 2164.8 1795.6 2086.1 369.2 78.7 17.0 3.6

2.06:

Copper

Stone and Clay Mining 5538.0 5269.5 5457.6 268.4 80.4 4.9 1.5 2.07: Chemical and Fertilizer Mining

1754.5 1705.1 1738.5 49.4 16.0 2.8 0.9

ToUl 15,893.4 13,895.8 15,224.2 1997.5 669.2 12.6 .4.2 Recalculated Total 1705.2 212.9 10.7 1.3

Metallic Ore Sectors only 8600.9 6921.2 8028.1 1679.7 572.8 19.5 6.7

(Sectors 2.01, 2.02, and 2.03) Recalculated Metallic Ore

Sectors 1433.9 182.3 16.7 2.1

'Data fro m Appendix C, except recalculated lines, which are scaled from these in accordance with the results of Appendix A.

From a long-run resource point of view, a breakthrough in corrosion of metals technology

might have the effect of conserving national resources of metallic ore, but would have less effect on non-metallic ores and national coal resources, and would have the least effect on national resources of petroleum and natural gas.

26
III. Discussion

The present study differs from previous ones because it attempts to assess all costs of

corrosion, direct and indirect, over the entire economy and to evaluate the uncertainties in these

cost estimates. Thus, this is an important advance over earlier attempts to determine the national economic effects of corrosion. The results of this NBS-BCL analysis agree qualitatively with those found in previous

studies. Because of efforts to be more complete, however, it is not surprising that the higher total costs of corrosion were found.

III.A. Reliability of Results

In assessing the reliability of results we must consider the soundness of both the I/O

methodology and the data that the I/O model uses. The validity and reliability of the I/O model

are discussed in detail in Section 3 of the BCL report. Some comments should be made, however, on the particular classification system of the present corrosion study. There is no classification system that cannot be improved, particularly since: The data gathering must await the classification system.

Defects in the classification system will be discovered during the data gathering.

In the present study, many cases were uncovered in which the corrosion cost needed to be

assigned to a supporting industry, but yet the corrosion effect was lost in a large aggregate

coefficient in the supporting industry. This is the product mix problem.

The product mix problem is a significant generator of error of estimation in an input-output

model. This problem arises because the economy produces more types of items than the approximately 130 sectors of the I/O model. Hence, many different products must be grouped into composite sectors. No error arises as long as either (1) the different products in a sector have quite

similar input requirements, or (2) the different products in a sector always move together (i.e., always maintain the same proportion of the sectoral output).

The construction sector is a significant one for concern about product mix. The construction

coefficients tend to be among the largest coefficients in the capital matrix. As for the differing

input requirements, our concern is not so much within the three worlds of corrosion analysis, but

with the significant differentiation in moving from world to world. The data from the large,

amorphous construction sectors are ill-suited to the purposes of corrosion analysis. This is a case where, with more time and resources for analysis, other techniques might have been explored.

If a new corrosion study were to be initiated or the present one significantly extended, two

alternative ways for reducing the product mix error in the construction sector would be considered:

1. Break the sector into a finer level of detail, or

2. Pass-through of information so that materials requirements coefficients would bypass

the construction sector and be assigned directly to the using sectors.

Either method would be sufficient for the accurate treatment of corrosion data. The latter would give a slightly smaller matrix which would be somewhat less costly to handle. The former

would permit a more accurate estimate of the cost of corrosion in the service of construction

sectors.The transportation sectors, although quite large and amorphous, are not sufficiently differentiated in input structure to generate a significant product mix problem.

In a future study, the use of less expensive materials in capital equipment, as in structures, and the use of thinner walls in tanks because the walls do not corrode might be included as direct

capital effects. No other classification system changes are recommended.

The comparison between World I and World III shows that roughly from 1/2 to 2 percent

of Gross National Product is spent on avoidable corrosion costs. Much of this cost may occur in

27
the smaller firms of an industry, perhaps too small to afford the expense of adequate corrosion engineering and maybe even unable to use the best practice of larger firms because of their higher

costs of acquiring capital funds. These possibilities suggest that there may be value in a program

to develop and maintain a data base on the economics of corrosion best practice for smaller firms and to transfer that information to those in the private sector needing it. In conclusion, the input-output model appears to be an appropriate vehicle for a study of

national and sectoral corrosion costs. The model offers the advantages of a comprehensive

checklist of questions on corrosion and a vehicle for integrating the answers. The application of

the model to the measurement of corrosion costs sidesteps the pitfalls of some other input-output

applications.

Regarding the reliability of data for use in the I/O methodology, as the BCL Report notes, the most uncertain data are the useful lives and particularly the avoidable costs. We concur in this judgment. We also note that the final demand data, which drive the I/O model, must be obtained

with much higher precision than the interindustry data. In order to estimate the uncertainty in the corrosion costs due to errors in the input data, it

is sufficient to examine some of the major contributions to the total cost. This examination is described in Appendix A to this report. The single product contributing most to corrosion costs is the automobile, and the largest contribution to the uncertainty in automobile corrosion expenses

comes, as expected, from the useful life estimates. This leads to a large error in the overall costs of

corrosion, clearly skewed to the high side, especially for the avoidable costs. That is, the best estimate of the error in the total cost of corrosion would be approximately +10 percent and -40

percent. The central value is, therefore, reduced to give equal uncertainties upward and downward.

In the case of avoidable costs, we consider the BCL result to be an approximate upper limit. For more details on the estimates of uncertainty, see Appendix A.

In addition to the results obtained by BCL using the I/O model, three examples of detailed or limited scope studies appear in their report: Federal, Electric Power and Automobile. The

reliability of such limited scope studies depends more directly on the soundness of the data obtained from interviews or the literature than in the I/O model. Consequently, limited studies can be helpful when examining a small segment of the U.S. economy in detail. In such an

approach, a simple summation of costs taken over all components of equipment, production, and

other similar factors within the sector may be sufficient. In some instances, determining costs per

unit may be useful. For example, in non-residential construction, builders suggest that about 1 percent of the cost of an edifice is attributable to corrosion prevention devices. Hence, one percent

of an estimate of the total of such building costs, as obtained from the Statistical Abstract of the

U.S., for example, yields an approximate total corrosion cost. For individual cases, a discounted cash flow computation may be used to assess the effects of corrosion costs. Thus, if capital expenses for corrosion prevention are ascertained via the data gathering process, costs due to corrosion for various equipment lifetimes can be computed. Yet another method is to carry out empirical correlations of corrosion costs with the corrosion agent intensity. This has been performed by Hahin [15] for certain military installations. For example, costs for paint maintenance can be correlated with certain climatological factors and

air pollution concentrations [15]. If such correlations can be carried out successfully, then the data may be used in a predictive fashion. In sum, data gathering is basically the same whichever analysis scheme is to be employed. For the entire economy or large segments of industry, perhaps I/O is the optimum analytical tool. However, for other purposes, a more limited analysis leading to specifically required results, e.g., how often to repaint a structure in order to minimize costs, is more effective.

III.B. Corrosion Problems in Developing Technologies

An important issue not directly addressed by the BCL report is the corrosion costs associated with new technologies. This omission results from the NBS requirement that the report

be concerned with the economy as it existed in 1975. Thus, while new technologies for coal

28
mining and oil extraction under increasingly severe conditions (deeper mines and deeper offshore

wells) may not be reflected in the 1975 results, they undoubtedly will have large impacts in the

future. The report predicts as a result of interviews with oil industry experts that corrosion costs

for oil extraction will "rise dramatically" in the future because of more use of offshore sites and

increased oil production from fields containing higher amounts of corrosives. As another example, in 1975 nuclear energy constituted only 10 percent of the energy

generation total. This technology, which must cope with a number of difficult problems, will undoubtedly have larger impacts in the future. The BCL report indicates that solutions to corrosion problems can be expected to have a substantial effect on reducing costs of nuclear

energy.Of great importance, also, are corrosion costs in the area of new technologies whose

commercialization is inhibited by the lack of solutions to the complex corrosion problems brought

about by quite different sets of conditions. Thus, a number of new problems will have to be solved

in order to cope with corrosion under the novel conditions expected under future technological,

economic, political and sociological constraints. Good descriptions of some of these future problems can be found in committee or workshop reports concerned, for example, with the

following:

1. Material problems in coal conversion technologies [16].

2. An overview of the material sciences [17].

3. Materials technology in the near-term energy program [18].

4. Research needs in energy conversion [19]. The main thrust in this section is to describe briefly the issues that will have impacts on

corrosion-prevention practices needed for developing technologies. Four major areas will be briefly discussed: (1) energy, (2) environment, (3) materials conservation, and (4) food.

(1) Energy—The many developing technologies in the area of energy have several ramifications that will affect corrosion costs. First, there will be the increasing need to develop

materials and protective measures to enable exploration of techniques that use highly corrosive conditions under high temperatures and pressures. Second, the continuing need to extract oil and

coal from deeper and more inaccessible wells and mines will demand an extension of presently

established corrosion prevention technologies. Finally, the utilization of polluting fuels will entail new corrosion prevention measures.

(2) Environment—Developing technologies to meet the requirements of environmental

regulations will necessitate materials that can withstand highly corrosive operating conditions. For

example, the requirement to control emissions from polluting fuels such as sulfur-bearing coals has

created the need to cope with the corrosion problems of desulfurizing systems. Another concern is the development of non-polluting inhibitors for cooling water treatment that are inexpensive and

as effective in preventing corrosion as the older inhibitors, such as chromates.

(3) Materials Conservation—In an economy where shortages of critical materials are a problem, developing technologies will require the ability to use substitute materials that are economical and corrosion resistant and contain no critically short components. Another approach

to effect material conservation will be the use of coatings and special surface treatments, such as ion implantation, to enable the technology to achieve satisfactory corrosion protection while using

small amounts of critically short materials. Finally, the use of recycled materials (a materials conservation measure) will require corrosion protection methods that are less sensitive to wide

variations in alloy impurity contents.

(4) Food Production—A need to raise the rate of food production will require an increase

in the extent and efficiency of irrigation and food storage systems. Inexpensive, corrosion resistant alloys will be needed for these applications.

While today's corrosion prevention measures will contribute towards making developing

technologies economically viable, new corrosion technology will be also needed for future problems.

29
IV. Conclusions

An investigation of the economic effect of corrosion in the United States was carried out by

the National Bureau of Standards. The economic analysis required was placed under contract to Battelle Columbus Laboratories. A significant feature of the study is that the method employed

input-output analysis—provides a methodological framework that permits comprehensive

treatment of all elements of the costs of corrosion: production costs, capital costs, and changes in useful lives, for example. The input/output model allows analysis of interindustry relationships in the national economy and attribution of relative costs to specific segments of the economy. While

there have been previous estimates of the costs of corrosion, none has provided a focused effort based upon a sound technical-ecopomic method, and none included the indirect effects of

corrosion. The working definition of the cost of corrosion was the increment of total costs incurred

because corrosion exists. This total was separated into avoidable and unavoidable costs. Avoidable

costs are those amenable to reduction by the most economically effective use of presently available corrosion control technology. Reduction of presently unavoidable costs requires technological advance.Using the results obtained in the input-output analysis as a basis, the total cost of corrosion

in the United States (1975) is estimated to be $70 billion—about 4.2 percent of the Gross

National Product. Of this amount, about 15 percent is estimated to be avoidable under criteria developed in the study. This means that a significant fraction, approximately $10 billion, of the

total now expended for corrosion control and in the production of goods for replacement or repair

because of corrosion, could be available for other uses through the economic use of presently

available technology.

One important aspect of this study of the economic effect of corrosion is its placement of a

full range of maintenance and replacement problems into an economic context that affords a measure of the severity of these problems and provides estimates of where and how the impacts of

corrosion are felt. The methodology established in the study, moreover, gives a basis for placing

industrial corrosion costs data on a common scale thus rendering existing data and future data more comparable and valuable. The study also provides a bibliography of 418 references on corrosion economics which

should serve as a resource for industry groups, Federal agencies. State and Local Governments,

and others, in their efforts to enhance productivity and reduce maintenance and replacement

expenditures. Another immediate value of the study is that it provides the Congress with a

reference point for the impact of corrosion against which the relative effect of other factors affecting the economy can be compared. In addition, the procedures developed in this study

provide a basis for technology assessments and the I/O model can possibly be used to assess economic effects of proposed means to reduce costs. This study does identify specific sectors of the economy where high avoidable and presently unavoidable corrosion costs are encountered and

where corrosion reduction activities might have an impact.

V. Acknowledgments

The following NBS staff members provided data input to this study in the areas indicated. (AH at National Bureau of Standards, Washington, D.C. 20234.)

Position and Sector

Leader, business machines

Leader, wood and paper

Leader, stone, clay and glass, non-ferrous

Social capital

Transportation equipment

Ferrous metal, electric power. Federal

J. Ambrose

L. Bennett

U. Bertocci

J. Carroll

B. Christ

E. Escalante

30
W. Gerhold Fabricated metal

J. Kruger Leader, construction A. Melmed Leader, scientific measurement apparatus,

special machinery

Auto

Wood and paper

Leader, Federal sector; electric power

Federal

Leader, minerals

Gas, oil, petroleum and chemicals, construction

Social capital

L. Bennett, leader of the NBS group, and the other authors wish to acknowledge the

assistance of R. Parke as coordinator, and the numerous helpful contributions by many other NBS

staff members. In addition, we express our gratitude to the following Battelle Columbus

Laboratories staff members who contributed to this study. (All at Battelle Columbus Laboratories,

505 King Avenue, Columbus, Ohio 43201.)

F. Ogburn

R. Parker

E. Passaglia A. Ruff

G. Ugiansky

H. Yakowitz

J. Young

W. E. Berry

W. K. Boyd

E. W. Brooman

A. R. Buhr

D. G. Dippold

W. H. Fisher

J. H. Payer

We are grateful for the important

Advisory Panel to BCL. Specific results each of the members of this panel, or of

Dr. Seymour L. Blum

Director Advanced Programs

Development

The MITRE Corporation

P. 0. Box 208

Bedford, Massachusetts 01730

Mr. C. P. Dillon 940 Park Street Saint Albans, West Virginia 25177

Dr. Mars G. Fontana The Ohio State University

Department of Metallurgical

Engineering

116 West 19th Avenue

Columbus, Ohio 43210

Dr. E. W. Haycock

Shell Development Corporation

3737 Bellaire Avenue

Houston, Texas 77027

Mr. T. F. Keams

AIR-320

Naval Air Systems Command

Department of the Navy

Washington, D.C. 20361

contributions of the following persons who constituted the and conclusions do not necessarily reflect the opinions of

the consultants and reader.

Dr. E. H. Phelps

U.S. Steel Corporation

Applied Research Laboratory

Monroeville, Pennsylvania 15146

Dr. Richard Priest Sears, Roebuck and Company

Corporate Offices Sears Tower

Chicago, Illinois 60684

Mr. L. C. Rowe

Research Laboratories

General Motors Corporation

General Motors Technical Center Warren, Michigan 48090

Dr. E. L. Zebroski

Electric Power Research Institute 3412 Hillview Avenue

Palo Alto, California 94303

31
Alternates

Mr. Howard Jelinek Manager of Inorganic Chemistry

Sears, Roebuck and Company

Department 817

925 South Homan Avenue

Chicago, Illinois 60607

Dr. T. 0. Passell

Electric Power Research Institute 3412 Hillview Avenue

Palo Alto, California 94303

And, finally, we are happy to acknowledge the counsel of the following persons who

as consultants and reader for this study.

Consultants

Dr. Edward B. Berman (for NBS)

Edward B. Berman Associates, Inc. Box 366

Marblehead, Massachusetts 01945

Dr. Roger W. Staehle (for BCL)

The Ohio State University

Department of Metallurgical Engineering

116 West 19th Avenue

Columbus, Ohio 43210

Reader

Dr. Charles Johnson

Institute for Fluid Dynamics and

Applied Mathematics

University of Maryland

College Park, Maryland 20842

32
VI. References

[1] Y. Kolotyrkin, quoted in Sov. Life, 9, 168 (1970).

[2] D. Behrens, Br. Cottos. J. 10 (3), 122 (1975).

[3] V. Vlasaari, Talouselama' (Economy), No. 14/15, 351 (1965) (Quoted by Linderborg, Ref.

4).

[4] S. Linderborg, Kemian Teollusius (Finland), 24, (3), 234 (1967).

[5] K. F. TradgSidh, Tekn. Tedskrift (Sweden), 95, (43), 1191 (1965) (Quoted by Linderborg, Ref.

4).

[6] T. P. Hoar (Chairman), "Report of the Committee on Corrosion and Protection", Dept. of Trade and Industry, H.M.S.O., London (1971). An independent corrosion survey by P.

Elliot, supplement to Chem. Engr., No. 265, Sept. (1973), substantiates the fmdings of the Hoar report.

[7] T. P. Hoar, Information Conference "Corrosion and Protection" presented at the Instn. Mech. Engrs., April 20-21, 1971, to discuss the Hoar Committee.

[8] K. S. Rajagopalan, Report on Metallic Corrosion and Its Prevention in India, CSIR.

Summary published in "The Hindu", English language newspaper (Madras), Nov. 12, 1973.

[9] R. W. Rene and H. H. Uhlig, /. Inst. Engr. Austral. 46 (3-4), 3 (1974).

[10] Boshoku Gijutse (Corrosion Engineering Journal), 26 (7), 401 (1977).

[11] H. H. Uhlig, Corrosion, 6 (1), 29 (1950).

[12] NACE Committee Survey Report, "Corrosion", October 1975.

[13] Materials Performance, 13 (9), 41 (1974).

[14] Standard Industrial Classification Manual, U.S. Government Printing Office (1972).

[15] C. Hahin, Letter Report M-146 to Fort Sheridan, Illinois (1975).

[16] R. W. Staehle, "Materials Problems and Research Opportunities in Coal Conversion," Vol. I and II, Corrosion Center, The Ohio State University, Columbus, Ohio (1974).

[17] W. L. Clinton, J. R. Cost, L. C. lanniello, "Materials Sciences Overview Workshop Reports,"

ERDA 77-76/1 and 77-76/2, August 1977.

[18] "Materials Technology in the Near-Term Energy Program," Report to the ad hoc Committee

on Critical Materials Technology in the Energy Program, Nat. Acad. Sci., Washington

(1974).

[19] "Research Needs Report: Energy Conversion Research," Task Force on Energy Conversion

Research, Am. Soc. Mech. Engr., New York (1976).

1

33

APPENDIX A

to ECONOMIC EFFECTS OF METALLIC CORROSION IN THE UNITED STATES

Estimate of Uncertainty

Elio Pattoglia

National Bureau of Standards

CONTENTS

Page

1. Introduction A-1

2. Cost of Corrosion A-1

2.1 Overall Costs A-1

2.2 Direct Costs to Industries A-2

2.3 Direct Plus Indirect Costs to Industries A-2

2.4 Summary A-3

3. Uncertainties in Stipulated Final Demand A-3

3.1 World II A-3

3.1.1 Aircraft in the Federal Government A-4

3.1.1.1 Maintenance Costs A-4

3.1.1.2 Capital Costs A-4

3.1.1.3 Summary on Aircraft A-5

3.1.2 Maintenance and Repair Construction-Corrosion in Federal Government A-5

3.1.3 Automobiles in Personal Consumption Expenditures A-5

3.1.3.1 Maintenance and Repair A-5

3.1.3.2 Capital Costs A-5

3.1.3.2.1 Uncertainties Caused by Lifetime A-6

3.1.3.2.2 Uncertainties Caused by Estimates of

the Capital Stock A-9

3.1.3.2.3 Uncertainties Caused by Estimates of

the Growth Rate A-9

3.1.3.3 Summary of Automobiles in PCE A-9

3.1.4 Summary of World II Uncertainties A-10

3.1.4.1 Federal Government Expenditures A-10

3.1.4.1.1 Systematic Error A-10

3.1.4.1.2 Random Uncertainties A-10

3.1.4.2 Personal Consumption Expenditures A-10

3.1.4.2.1 Systematic Error A-10

3.1.4.2.2 Random Uncertainty A-10

3.1.4.3 State and Local Governments A-10

3.1.4.3.1 Systematic Error A-10

3.1.4.3.2 Random Uncertainty A-10

3.1.5 Summary of Systematic Error in Stipulated Final Demand—World II A-10

3.1.6 Summary of Random Uncertainty in Stipulated Final Demand—World II A-10

3.2 World III A-11

3.2.1 PCE—The Automobile A-11

3.2.2 Other Vectors A-12

3.2.3 Summary of World III A-12

A-iii
CONTENTS—Continued p^^^

4. Uncertainty in Intermediate Output Costs of Corrosion A-13

4.1 Coefficient Changes in A Matrix A-13

4.1.1 Sector llAOl—Automobiles A-13

4.1.2 New Construction, Public Utilities A-13

4.1.3 Electric Power A-13

4.2 Uncertainties in Total Output A-13

4.3 Summary of Uncertainties in Intermediate Output—World II A-15

4.4 Intermediate Output—World III A-15

5. Uncertainties in Capital Costs—PFCF A-16

5.1 Introduction A-16

5.2 Effect of Lifetime A-17

5.2.1 Capital Costs for Automobiles A-17

5.2.2 Other Sectors A-18

5.3 Uncertainties in Capital-Output Coefficients and Growth Rates A-18

5.4 World III A-19

6. Summary and Conclusions A-19

7. References to Appendix A A-21

LIST OF TABLES

Page

Table A-1. Corrosion Cost, PCE Automobiles A-6

Table A-2. Stipulated Final Demand and Range of Uncertainty in World II A-11

Table A-3. Comparison of World II and World III BCL Estimates of Corrosion Costs A-11

Table A-4. Summary of Uncertainties in World III, Stipulated Final Demand A-12

Table A-5. Sectors with Largest Cost in Intermediate Output A-14

Table A-6. PFCF Cost, by Sector, $M A-17

Table A-7. Effect on Corrosion Costs of Changes in Automobile Lifetime Assumptions.. A-17

Table A-8. Recalculation of Avoidable Costs, $M A-20

Table A-9. Summary of Results A-20

A-iv
Estimate of Uncertainty

1. introduction

In this Appendix, we will attempt to estimate the uncertainties in the final estimate of the

cost of corrosion as determined by BCL, and the uncertainty in its elements. The method that will be followed in this analysis is similar to that which would be used in estimating the uncertainty in any measurement process, although the present situation is more complex in that it does not

involve physical measurement and often involves personal judgment. In such an estimate,

however, we will need to be concerned with systematic uncertainties and random uncertainties. Often, we do not know the range of values of the input data. In many cases, therefore, the analysis

will be more in the sense of a sensitivity analysis, in which the sensitivity of the result for reasonable changes in the input data are calculated. In any case, we need to relate the final results

to the data obtained by survey or otherwise. Hence, we begin with a description of the method

used to determine the cost of corrosion.

2. Cost of Corrosion

It is important to recognize that BCL determined six costs of corrosion. These six costs are broken down into three categories each consisting of avoidable and unavoidable costs. The three

categories are:

a) Overall costs to the economy.

b) The direct costs as expressed by industry indicators, and their sum. As will be seen, this

is essentially a portion of the costs included in (a).

c) The direct plus indirect costs as expressed by industry indicators.

For each of these categories, both avoidable and unavoidable costs were estimated, giving the total of six costs as previously mentioned.

2.1 Overall Costs

The overall costs are given by the sum of the costs in individual sectors considered either as a row or a column. The equation that relates the total cost of corrosion to the original data is

cc* = 2 AFDt + 2 ssUt

k k (1) + 22 [B'G + BiR\, X} - 2 2 [B'G + B'R%, X]

i = 2,3

The terms in this equation have the following meaning:

cc' is the total cost of corrosion in World i, i = II, III, AFDit is the change in stipulated final demand in sector k between World I and World i, i = II, III.

A-1
The components of stipulated final demand that contribute to the cost of corrosion are Personal Consumption Expenditures (PCE), Federal Government Expenditures (FGE), and State and Local Government Expenditures (S/LGE).

ss^ is the social savings in World i (i = II,III) for sector k, per unit output.

X|j is the total output for sector k in World I.

is the total output for sector k in World i (i=II,III).

G is the growth matrix.

is the capital-output matrix in World I.

B* is the capital-output matrix in World i (i = II,III). R' is the capital replacement matrix in World I. R* is the capital replacement matrix in World i (i =II, III).

In this equation, all the quantities on the right hand side are experimentally determined

except the total outputs. These in turn are given by:

XL =2 [1-AJ - (B^G + fiiRi)]-! Fm

j=I,II,III

where A* is the matrix of direct technical coefficients (BCL Report, p. 17). This equation, in combination with eq. (1), shows that stipulated final demand which is determined exogenously from the input-output analysis, enters all of the terms in the equation.

From these two equations, we can see that an analysis of the uncertainty involves answers to the following questions.

a) What are the uncertainties in the estimates of final demand, or more precisely, the

uncertainty in the difference in final demand between World I and World II or III?

b) What are the uncertainties in the A matrix?

c) What are the uncertainties in the three capital matrices, B, G, and R? How are the

errors in the A and capital matrices propagated on inversion?

2.2 Direct Costs to Industries

The direct costs to industries are given by (BCL Report, p. 34ff): H = sskXL + [r'c'+pi) - {ric*+p»)]kXL (3) i=II,III

where

(r^c^+pOk = 2 (B^G+BiROik

j = 1,11,111

The terms have the same meaning as in eq. (1) and (2). It will be recognized that, with the exception of the total outputs used, the sum of eq. (3) is the same as the the second and third terms in the right hand side of eq. (1), but summed in a different order. Hence, in an estimate of the uncertainty in the sum, those terms of eq. (1) will be the same as the uncertainty in the sum of

the direct costs to industries, although the individual terms will be different.

2.3 Direct Pius indirect Costs

The equations for these costs are given in the BCL Report, p. 38. They were not

investigated in detail. The overall uncertainty is not likely to be different from that in the direct

costs.

A-2
2.4 Summary

Considering the above analysis, an estimate of the uncertainty for the overall costs in Worlds II and III will serve as an estimate of the uncertainty in the total of the other costs as well. Hence, we now proceed to the estimate of the uncertainty in the overall costs.

3. Uncertainties in Stipulated Final Demand

3.1 World II

The vectors of stipulated final demand for which corrosion costs were determined for both

World II and World III were Personal Consumption Expenditures (PCE), Federal Government

Expenditures (FGE), and State and Local Government Expenditures (S/LGE). The costs estimated

by BCL for World II are: PCE $22.8 B

FGE 8.1 B

S/LGE 2.9 B

Total $33.8 B

Treating the uncertainties in each of these estimates as standard errors and as independent, then

the fractional standard error in the total is given by

fpD = [TOpCE + (fX')FGE + (PX')s/lGe]^'^ (5)

where the fs are the fractional uncertainty for the specific vector, and the x's are the fraction of

the total final demand cost associated with that vector. For the BCL results, the values of the x's

are: Xpce = 0.675; Xfge = 0.239; Xs/lge = 0.086. If all the fs are the same then the uncertainty in final demand is ffo = 0.721 f. The cost for each of the vectors in turn is made up of a sum of costs for a number of

sectors. In analogy with eq. (5), the fractional uncertainty for each of the vectors is given by

fk = [? fiixy^'^

where the subscript k refers to the vector and i to the sector. Hence, in order to carry out an accurate estimate we should estimate the uncertainties for each of the sectors, calculate the uncertainty for each of the vectors from eq. (6), and from these

calculate the uncertainty in the total from eq. (5). Within the time constraints this was impossible.

Moreover, it is not essential if all that is required is a reasonable estimate of the uncertainty. For

this, it is necessary only to choose some of the largest contributors to the total cost. These,

therefore, were the sectors that were analyzed:

a) Aircraft in the Federal Government. Aircraft corrosion expenditures represent

approximately 40 percent of the total corrosion costs to the Federal Government.

b) Real Property Maintenance in Federal Government. While not a large fraction of the

costs in the Federal Government, this is important because BCL did it by in-house

estimation, and a survey was also carried out.

c) Automobiles in PCE.

We will now discuss the uncertainties in each of these.

A-3
3.1.1 Aircraft in the F*cl«ral Governmant

3.1.1.1 Maintenance Cests

Based on information developed by the survey of the Federal Government, we assign a minimum uncertainty of approximately ±25 percent to these costs. This uncertainty arises principally from (1) the uncertainty as to the fraction of maintenance expenses that are attributable

to corrosion, (2) the uncertainties of extrapolating depot costs to obtain field costs for the Air

Force, and (3) uncertainties with respect to spare parts costs in the Air Force.

3.1.1.2 Capital Costs

Capital costs for corrosion come from two sources: premature replacement and expenses for redundant capital. As described in Section 3.4 of the BCL report, the calculation is done as

follows. Consider that there is only one type of equipment, with a lifetime u' in World i (i=

I,II,III). Let the capital stock in World i be K', and let the growth rate be g, taken to be the same

for all three worlds. Then the yearly capital replacement cost in World i is given by

g ^ g 1+g (l+g)"-!

(7)

The difference in this quantity for the two worlds in question (World I and II or I and III) gives the total cost for that world. When the capital equipment produced by a sector has a range of lifetimes, BCL used the average value of the function in eq. (7), weighting all lives equally. This assumes that there is equal monetary value of stock at each lifetime. As will be seen later under Automobile, this emphasizes the short lives and can lead to very serious uncertainties. For aircraft, the lifetime range was estimated to be 10-40 years, with no change for corrosion. To see the sources of uncertainty, consider eq. (7) for the case where there is no change in lifetime, but there is redundant capital. Under these conditions, eq. (7) gives for the cost of

corrosion in World II

[(H-g)"-l][l+g] (8)

where {° is the fraction of capital equipment that is redundant in World II. The uncertainty is thus determined by the uncertainties in this fraction, in K, in g, and in u. From this equation, the

fractional uncertainty in the total cost can be related to the fractional uncertainty in in K, in g, and in u. The resulting expression is unwieldy. However, evaluated for u = 10 and g= 0.1030 (the value used by BCL), we obtain

fee = [f^ + + (0-34 fg)' + (0.598 {J^yl^. (9)

Our estimates in these uncertainties are as follows.

1) f^. The value of I, used by BCL was 6 percent. The actual estimate from the survey was 5-8 percent, and it is estimated that the range could be from 4-9 percent, but probably not greater. Hence, ^ has an estimated uncertainty of ±40 percent.

2) fx- This is the uncertainty in the capital stock. Considering that the capital stock was

calculated by BCL (see pgs. 33 and 34 of the BCL report) from the trend year purchases and the growth rate, with assumptions of long term steady state, etc., an

uncertainty of 10 percent is arbitrarily assigned. This is probably a minimum

estimate.

3) fg. This is the uncertainty in the growth rate. The growth rate was derived by BCL by

a regression analysis for five years from 1947 to 1967 for which data are available. An uncertainty of ±10 percent is arbitrarily assigned.

A-4
4) fu- This is the uncertainty in the lifetime. This can be quite large. A value of ±25

percent is arbitrarily assigned.

These estimates of uncertainty give a total uncertainty of ±44 percent for the capital costs.

If we also consider that there is uncertainty because of the method of calculation with a range of

lifetimes, the uncertainty in this capital estimate is estimated to be ±50 percent.

3.1.1.3 Summary on Aircraft

The total annual capital costs for aircraft are about $2.2 B, and the maintenance costs are $1 B. From the ±25 percent uncertainty for maintenance and the ±50 percent uncertainty in capital expenses, an uncertainty of ±36 percent in the total corrosion costs for aircraft is calculated.

3.1.2 Maintenance and Repair Construction-Corrosion in Federal Government

This is an important element to analyze because it is one for which a survey was conducted,

and which BCL also did by an in-house disaggregation. The survey estimate for this expense was $375 M, whereas BCL used a figure of $592 M. This suggests a high estimate of 58 percent based on $375 M as the correct figure.

3.1.3 Automobiles in Personal Consumption Expenditures

The BCL figures indicate that personal consumption expenditures related to corrosion ($22.8 B) account for 67.5 percent of the corrosion expenditures associated with stipulated final demand ($33.7 B) in World II. Automobiles, in turn, account for 76.7 percent of PCE corrosion

costs, divided between 88 percent ($15.8 B) in capital replacement costs and 12 percent ($2.1 B)

in maintenance and repair. Hence, personal automobile capital corrosion costs account for 45.5

percent of total stipulated final demand costs. It is, therefore, important to analyze this in detail.

3.1.3.1 Maintenance and Repair

Corrosion related maintenance and repair expenses for automobiles were carried out by a survey (see automobile chapter in BCL report) and were also estimated by BCL as a fraction of

total expenses for automobile repair and maintenance (Sector 21.05 in the BCL listing). BCL took

the maintenance and repair expenses for World II to be 25 percent less than those in World I. After considering the uncertainty in the case of aircraft, and upon consultation with a member of the survey team, an uncertainty ±40 percent is assigned to this estimate. This is equivalent to saying that corrosion-related maintenance and repair expenses range from 15 percent to 35

percent of all maintenance and repair expenses on automobiles.

3.1.3.2 Capital Costs

In this case, BCL assumed no difference in capital stock because of corrosion, but there is a

difference of lifetime of equipment. This is a reasonable assumption. The method of calculation used was to calculate the average value of annual capital replacement, as in eq. (7), for World I for

its range of lifetimes, and subtract from this the average value for World II for that range of

lifetimes. Uncertainties are caused by:

(1) The range of lifetimes used.

(2) The method of averaging, which assumes equal capital stock for each lifetime. This is important since the function in eq. (7) rises very steeply as u decreases. The minimum

value u can have is two, by the definition of a durable good, and a simple change from

two to three can cause large changes in the estimate of corrosion costs.

(3) The value of the capital stock, K. This is not a survey estimate, but estimated from

growth rates and purchases in the trend year (BCL Report, p. 33).

A-5
(4) Uncertainties caused by an error in the estimate of g. We now discuss each of these.

3.1.3.2.1 Uncertainties Caused by Lifetime The calculations for several cases are given in Table A-1. In all cases, g has the value 0.0607, which is what was used by BCL. Case 1 is the BCL case. In Case 2 all that was done was

to change the minimum lifetime in World I from two years to three years. This decreased the corrosion cost from $15.4 B in World II and $13.8 B in World III to $10.7 B and $9.0 B,

respectively.

Table A-1. Corrosion Cost, PCE Automobiles

Case 1: BCL Case World Range of Lifetime

I 2-20

II 10-20

III 8-20

Cost, World II = $15.4 B

World III = $13.8 B

Case 2: Change of life in World I from 2-20 to 3-20, no other change.

Cost, World II = $10.7 B

World III = $ 9.0 B

Case 3: Use of a distribution of capital stock

(see text p. A-7).

Cost, World II = $10.4 B (Lifetime of mufflers 2 years) $ 9.6 B (Lifetime of mufflers 3 years)

Case 3

Personally Owned Automobiles (see text, page A-7)

World I World II Lifetime Fraction of Stock Lifetime Fraction of Stock

2 0.0296 10 0.0387

3 0.0091 11 0.0395 4 0.0154 12 0.1176

5 0.0241 13 0.2192 6 0.0548 14 0.2496

7 0.0628 15 0.1647 8 0.0959 16 0.0815 9 0.1233 17 0.0431 10 0.1308 18 0.0161

11 0.1188 19 0.0124

12 0.0954 20 0.0076

13 0.0693 14 0.0488

15 0.0327 16 0.0211

17 0.0220 18 0.0161 19 0.0124 20 0.0076

A-6
Case 3 is more complicated. For this a more accurate distribution of capital stock with

respect to lifetime was attempted. This distribution was arrived at in the following way: Two parts of a car—exhaust systems and water pumps*—were assumed to have lifetimes of 2 and 6 years,

respectively, and to be replaced because of corrosion. Their fraction of the capital stock was

calculated by taking their replacement value—$100 and $70, respectively—and dividing them by

the total replacement value of the automobile, taken as $4000. The remainder of the distribution

is made up from the known scrappage rates of automobiles, taking for the distribution the

probability of scrappage at a given age for a given model year. (E. Passaglia, unpublished results) The whole distribution was then normalized. For World II, the distribution for World I was

compressed to ten years, and distributed between the years 10 and 20 to be as consistent as possible with what BCL has done. These two distributions are given in Table A-1. (This

computation still has deficiencies; see below.) The corrosion cost is $10.4 B for this distribution,

which is significantly less than the Case I value of $15.4 B. If, in addition, the life of mufflers is raised to three years, the cost is decreased to $9.6 B. The distributions given in Table A-1, while approximately correct, do not give the desired

quantity, namely the fraction of capital stock of automobiles in each lifetime range. To obtain this quantity, what is needed is: (1) the fraction of automobiles in the population for each age of automobiles, and (2) the age-specific probability of scrappage; i.e., the conditional probability that having arrived at age r, the automobile will be scrapped before age T+1. The product of these two quantities, when normalized to unity, gives the desired distribution. For World I, the data for such a computation are available [1], and the methods for their treatment are given by Gomick

and Passaglia [2]. For World II, the data need to be constructed, and this can be done by the methods given by Gomick and Passaglia. The method is as follows:

(1) Construct a curve giving the a-priori probability at year zero that an automobile will

last at least to age T. The sum of these probabilities gives the average expected life of

the automobile.

(2) From this curve, construct the age specific probabilities of scrappage. This can be done

by the methods given in [2].

(3) From the age specific probabilities and the assumption of a steady state growing

population, compute the age distribution of the population.

(4) From the product of (2) and (3) compute the desired distribution as in World I.

This calculation was carried out. The curves of the a-priori probability in year zero of

lasting to year r is given in figure A-1. The curve for World I is calculated from data given in reference 1. The expected life is 9.6 years. The curve for World II was constructed with the following criteria.

(1) The probability in the early years does not change. This seems reasonable in that scrappage in these early years is not affected by corrosion.

(2) The expected life should be four years longer than World I. This is done to be

consistent with the BCL estimates. The curve shown in figure A-1 represents an

expected life of 13.6 years.

(3) No car lasts longer than 20 years, again to be consistent with the BCL estimate. These three constraints are quite restrictive. Curves were drawn by eye until they were met.

Analytical calculation was not attempted.

From these curves, using the method described above, the distributions of the population

with respect to lifetime were constructed. These are shown in figure A-2. For the World I case, we

have added mufflers and water pumps as described above, with mufflers considered to have a

lifetime of 2 years. The curve for World II shows a very definite peak in the later years, as necessitated by the constraints put on the distribution as discussed above.

* Water pumps are not replaced exclusively because of corrosions. Their use here represents all other items, such as radiators, that are sometimes replaced because of

corrosion. An error here does not materially affect the results obtained in this Section.

A-7
1.0

0.5 -

World H

I3.6Y

Figure A-1. The probability, when new, that an automobile will be scrapped at age r. The lower curve represents fTorld I, and

the upper curve represents fTorld II. The numbers associated with the curves give the average expected life when new.

0 5 10 15 20

T,YEARS

Figure A-2. Thefraction of the population of automobiles with lifetime T. The dotted curve is for World I, and the solid curve is for World II. These curves are derived by the methods given on page A-7.

A-8
The corrosion cost calculated from these distributions is $7.9 B. If, in addition, the lifetime of mufflers is increased to 3 years, the cost is reduced to $6.9 B. The results obtained in this section demonstrate the sensitivity of the BCL calculation to the range of lifetimes and the distribution of capital stock with respect to lifetime. It should be noted

that in the special chapter on the automobile, BCL derived at a total cost of about $6 B—

a

number significantly different from the $17.4 B obtained by the I/O method. The results obtained

by the analysis presented here are closer to the special chapter results, although the two methods

differ widely in methodology.

In addition to these factors associated with the lifetime distribution, there is an uncertainty

caused by the range of lifetimes in World II. This range was taken by BCL to be 10-20 years, or an average of 15. No extensive calculations were made on the uncertainties caused by possible

changes in this range. However, using the BCL distribution of lifetimes, it is calculated that if the average life in World II is changed by ±1 year, an uncertainty in the corrosion cost of approximately ±13 percent is introduced. If it is changed by ±2 years, an uncertainty of approximately ±27 percent is introduced.

3.1.3.2.2 Uncertainties Caused by Estimates of the Capital Stock

The stock of personally owned capital from the automobile sector was estimated by BCL to be $228 B. The magnitude was calculated from the purchases in the trend year, the growth rate, and the range of lifetimes (BCL Report, p. 33). The actual equation used was ^ C(l +g)[(l+g")-l]

g[(H-g)"+g] (10)

where C is the PCE in the automobile sector for the trend year. This function was averaged over

the range of lifetimes (2-20 years). No detailed analysis of this expression was carried out. It is reasonably sensitive to the value of growth rate used, and considering the uncertainties in the

fraction of capital stock in each lifetime, an uncertainty of ±25 percent is arbitrarily assigned.

3.1.3.2.3 Uncertainties Caused by Estimates of the Growth Rate

Direct computation shows that uncertainties in the growth rate do not affect the cost of

corrosion substantially for a given capital stock. For example, a growth rate of 0.035 (E. Passaglia,

unpublished results) gives a cost of corrosion only a few hundred million dollars different from the value obtained by BCL. This is an insignificant difference, considering the magnitude of the other

uncertainties.

3.1.3.3 Summary of Automobiles in PCE

The findings for automobiles in PCE are summarized as follows:

1) An uncertainty of ±40 percent in maintenance and repair expenses for corrosion.

2) A likely overestimate of $5-8 B in capital expenses, caused by the method of averaging

the capital stock lifetimes and the particular choice of lifetimes.

3) An uncertainty of perhaps ±25 percent because of the uncertainty of the estimate of

capital stock.

4) An uncertainty of another ±30 percent because of the uncertainty of lifetimes in World II. The total effect of all of the considerations are difficult to estimate analytically. Probably, a reasonable estimate would be as follows:

1) A systematic overestimate of +$7 B.

2) A random uncertainty of ±50 percent.

A-9
3.1.4 Summary of World II Uncertainties

3.1.4.1 Federal Government Expenditures

3.1.4.1.1 Systematic Error

The one systematic overestimate found was $0.2 B for Maintenance and Repair

Construction corrosion.

3.1.4.1.2 Random Uncertainties

The total uncertainty for aircraft was ±36 percent, with the uncertainty in maintenance and

repair being ±25 percent and that in capital costs being ±50 percent. Since these were some of

the best known of all the costs, it is not unreasonable to assign an overall uncertainty to the remaining sectors of FGE expenditures of ±50 percent. When this is done, use of eq. (6) gives an

overall uncertainty in FGE corrosion costs as ±21 percent.

3.1.4.2 Personal Consumption Expenditures

3.1.4.2.1 Systematic Error

As discussed above, there is a possible systematic overestimate of $5-8 B in the automobile

sector. No evidence of other systematic uncertainty was found, but the other sectors were not

investigated extensively.

3.1.4.2.2 Random Uncertainty

In the BCL results, the corrosion costs in the automobile sector account for 76.7 percent of PCE corrosion costs. Practically all of the uncertainty in this vector comes, therefore, from the uncertainty in the automobile sector. This is estimated to be ±50 percent. Using this uncertainty

for all the other sectors of PCE, we calculate an uncertainty of ±35 percent.

3.1.4.3 State and Local Governments

3.1.4.3.1 Systematic Error

The BCL results show that the largest expense in S/LGE is from Maintenance and Repair

Construction. This is $1,587 B out of a total of $2,906 B. The figure of $1,587 B was arrived at by BCL's disaggregation procedure, which led to a high estimate in the Federal Government of $0.2 B. We, therefore, conclude that the figure of $1,587 B may be high by $0.5 B.

3.1.4.3.2 Random Uncertainty

This vector was the least studied of the stipulated final demand vectors. A consideration of

the other vectors leads us to assign a probable uncertainty of ±40 percent in the results.

3.1.5 Summary of Systematic Error in Stipulated Final Demand—World II

Consideration of the various factors above leads to a possible total systematic error of $5.7- 8.7 B. The value taken as representative of this range is $7 B.

3.1.6 Summary of Random Uncertainty in Stipulated Final Demand—World II

Recapitulating the above we have for the random uncertainties: PCE: ±35%

PGE: ±21%

S/LGE: ±40%.

A-10
Using eq. (5) and the associated values of we obtain for the total estimated uncertainty in stipulated final demand the value of 24.3 percent. Table A-2 gives the present estimates as compared to the BCL estimates. Considering the type of data available for this study, this uncertainty is not considered excessive.

3.2 World III

The estimates for World III were perforce largely subjective. As such, it is very difficult to estimate the uncertainty. In Table A-3, we show the actual and avoidable costs for all the vectors

in which corrosion costs are incurred. For completeness, we have included Private Fixed Capital

Formation and Intermediate Output Social Savings,'* although these are not part of stipulated final demand.

The table shows some striking results. Thus, the BCL results indicate that approximately 70

percent of expenses made by consumers for corrosion are avoidable, and that approximately 52

percent of corrosion expenses associated with private fixed capital are avoidable. These are important results that warrant investigation.

Table A-2. Stipulated Final Demand and Range of Uncertainty in fForld II

Billions of Dollars BCL NBS

Total Range Total Range

PCE 22.8 15.8 10.3—21.3 FGE 8.1 7.9 6.2— 9.6 S/LGE 2.9 2.4 1.2— 3.6

Total 33.8 26.1 17.9—34.5

Table A-3. Comparison of World II and World III BCL Estimates of Corrosion Cost

Billions of Dollars World I-World II World I-World III Avoidable/Total

Vector Total Cost Avoidable Cost %

PCE 22.76 15.88 69.8 FGE 8.06 1.66 20.6 S/LGE 2.91 0.90 30.9 PFCF* 24.09 12.46 51.7

Intermediate Output* 24.48 2.04 8.3

Total 82.30 32.94 40.0

*Not part of stipulated final demand, but added for completeness.

3.2.1 PCE—The Automobile

The BCL results show that $13.8 B of the capital corrosion expenses associated with the personally owned automobiles are avoidable (World I minus World III). Since the total expenses (World I minus World II) were $15.4 B, BCL considers that approximately 90 percent of the

'The second term in eq. (1). See also BCL report, page 18.

A-11
capital expenses associated with automobiles are avoidable.* This is an extraordinarily high

percentage. Moreover, capital expenses associated with the personally- owned automobile account

for 13.8/15.9 or 87 percent of the avoidable costs in PCE, and 13.8/32.9 or 42 percent of total avoidable costs to the whole economy. Hence, it is important to examine the assumptions in this calculation in detail. The principal reason for the BCL estimate for avoidable cost being so high is the assumption that the lifetime range of automobiles in World III (8-20 years) is very similar to that

in World 11 (10-20 years). A simple calculation shows that a change in the World III lifetime from

8-20 years to 7-20 years, and 6-20 years, gives a change in avoidable costs from $13.8 B to $12.7

B and $11.4 B, respectively. In addition, no convincing reason is given for making the lifetime of equipment in World III closer to that in World II rather than that in World 1. It is possible,

therefore, to consider that the true estimate may be as low as zero (although this is unlikely), and

is probably no higher (in percentage) than derived by BCL. Perhaps a reasonable estimate of the avoidable cost is 25 percent of the total cost.* If this is applied to the BCL estimate and the

analysis presented in this Appendix in Section 3.1.3, the total range is $1.7 B to $3.9 B. This

leads to the conclusion that the BCL estimate of $13.8 B may be $10 B to $12 B too high. Taking

the other sectors of PCE as determined by BCL, we obtain a final estimate of avoidable costs for PCE of $4.9 B as compared to $15.9 B.

3.2.2 Other Vectors

The other vectors of stipulated final demand were not investigated in detail. They are

sufficiently small as compared to the above that they do not warrant a great deal of analytical

effort except to note that the actual value may be as low as zero, although this is unlikely. The

values were, however, not changed from the BCL estimates, but an uncertainty of ±50 percent was arbitrarily assigned.

3.2.3 Summary of World III

The summary of our estimate of uncertainty is given in Table A-4. This table expresses the

following:

1) There is a probable overestimate of about $11 B in PCE, arising from the method by

which automobile capital costs are handled.

2) The range of uncertainty in the other costs is such that they are probably no higher

than the BCL estimates.

Table A-4. Summary of Uncertainties in World III, Stipulated Final Demand

BCL Estimate

of Avoidable

Cost

Billions of Dollars NBS Estimated

Systematic

Error NBS Toul RangeEstimate NBS Revised

Estimate

PCE 15.88 11 3.8 to 15.9 4.9 FGE 1.66 0.8 to 2.5 1.7 S/LGE 0.90 0.5 to 1.4 0.9

Toul 18.44 11 5.1 to 19.8 7.5

^See, however, the automobile chapter in the BCL report and in the NBS Report. *See BCL report, page C18, and reference 3.

A-12
4. Uncertainty in Intermediate Output Costs of Corrosion

Intermediate output costs of corrosion are represented by the second term in eq. (1), page A1. Uncertainties in it come from two sources: uncertainties in the estimate of social savings, and

uncertainties in the estimate of final demand components.

The sum of the costs represented by the second term in eq. (1) can be written

cc' = 2 cck

k (11)

where cCk refers to the intermediate output corrosion costs for sector k and world i (i = II,III), and

cc' is the total cost for that world. From eq. (11), it follows that

^"'=<i'^U'"" (12)

where cr denotes the uncertainty. Because of the square terms in eq. (12), we need to look at those sectors that have the

largest costs. Accordingly, in Table A-5, we show all the sectors that have costs greater than $200

M. There are 31 such sectors. Together they account for 77.6 percent of the intermediate output

costs. These thirty-one sectors are still too many to analyze in detail. Hence, we inspect three of them: llAOl—Automobiles, 18.02 Electric Power, and 19.03, New Construction, Public Utilities. We will analyze each of these for coefficient uncertainties in the A matrix and uncertainties in

total output.

4.1 Coefficient Changes in A Matrix

4.1.1 Sector 11 A01—Automobiles

From the BCL results, the principal contributors to changes in the A matrix between World

I and World II, and the percentage change of total change they account for are Alloy Steel (13.2

percent). Paints (13.2 percent). Primary Copper (9.9 percent). Primary Aluminum (15.7 percent).

Corrosion Plating (26.3 percent), and Auto Repair and Service (21.8 percent).

These figures were investigated by the NBS corrosion staff. Qualitatively, it is felt that the

results may be somewhat of an overestimate, particularly the changes in the alloy steel. However,

no quantitative estimate was attempted. It is estimated that the uncertainty in the BCL results is ±20 percent.

4.1.2 New Construction, Public Utilities

From the BCL results, a full 82.2 percent of the social savings in this sector comes from

assigning 90 percent of the copper to corrosion uses. The NBS corrosion staff feels this may be

somewhat of an overestimate because of the use of copper for heat exchanger and esthetic purposes. However, no quantitative estimate was made. A random uncertainty of ±20 percent is assigned to the remainder.

4.1.3 Electric Power

The social savings in this sector comes from maintenance and repair construction, corrosion,

and other business and professional services. No systematic error was found, and an estimated

uncertainty of ±20 percent is assigned to the total.

4.2 Uncertainties in Total Output

Total output is calculated by eq. (2). It is thus subject to uncertainties in stipulated final demand, in the A matrix, and in the capital matrices. The only good way to get an estimate of what effect these uncertainties are likely to have is to carry out test calculations with selected changes. This was not done, and hence, we cannot say anything definitive about the uncertainties.

A-13
Table A-5. Sectors with Largest Costs in Intermediate Output

Intermediate Output Costs Sector (Millions of Dollars) % of Total

4X05 602.9 2.47 4.07 456.1 1.87 5.01 881.9 3.61 5.03 489.1 2.00 7A01 694.0 2.84

8.05 1045.7 4.28

8.06 680.9 2.79 8C07 589.4 2.41 9.02 662.8 2.71 10.08 532.4 2.18 llAOl 134S.7 5.52 llBOl 441.4 1.81 11.02 298.8 1.22 12.06 322.6 1.32 13.02 404.7 1.66 13.03 265.8 1.09 16.01 296.9 1.21 16.02 338.1 1.38 17.01 202.8 0.83 17.02 225.5 0.92 17.03 446.8 1.83 18.01 326.9 1.34 18.02 2689.7 11.00 18.04 391.8 1.60 19.02 495.0 2.02 19.03 1485.1 6.07 19B05 361.1 1.4^ 20.01 606.4 2.48 20.02 612.5 2.51 20.05 222.5 0.91 21.05 272.5 1.11

Total of 31

Largest Sectors 18,978.4 77.6

It seems clear that if the uncertainties are indeed random and apply to all sectors, then the process

of matrix inversion and multiplication shown in eq. (2) will not cause a serious uncertainty in the sum of the sector total outputs. What happens to individual sector total outputs is unknown.

Moreover, we have seen above that for some sectors (e.g., llAOl, automobiles) there is may be

tendency for the estimates of corrosion costs to be systematically high. What effect this will have on total output in that and other sectors is unknown without model calculation. For an estimate of the effect of Final Demand on Total Intermediate Output Costs, we can, however, reason as follows. A decrease in Final Demand of $57.8 B causes total output to change

from $2917 B in World I to $2756 B in World II. This is a change of only 5.5 percent. Hence, it

is reasonable to conclude that fractional changes in the decrease in final demand will not have a

significant effect on total output and, hence, on those portions of the corrosion cost estimate that depend on total output. Hence, uncertainties caused by changes in total output resulting from

changes in final demand appear to be quite small and will not be considered.

A-14
4.3 Summary of Uncertainties in Intermediate Output—World II

Not all sectors were investigated. Of the three that were, some evidence of overestimate on

the results was uncovered. However, in other sectors (e.g.. Pulp and Paper) evidence of an

underestimate exists. In this respect, the comments in the BCL report, Section 5.3, should be

considered. Hence, we conclude that there is no likely systematic error. With this conclusion, the results for Intermediate Output are the most certain results obtained. Estimating the uncertainty for each sector as ±25 percent, use of eq. (6) leads to an

estimate of uncertainty of about ±4 percent. This is negligible.

4.4 Intermediate Output—World III

For World HI, Intermediate Output Social Savings are $2.04 B out of a total of $32.9 B in avoidable costs. The only changes BCL considered in going from World I to World HI were

changes in maintenance practices which, in a few cases, led to changes in value added. No changes

in inputs such as more corrosion resistant metals, more zinc coatings, etc., were considered, as these changes in manufacturing inputs were considered second order effects (see page 63 of the BCL report). Thus, World I manufacturing technology is considered by BCL to be best practice, or

so close to it that the difference, as far as costs is concerned, is negligible. Maintenance practices

are, however, not considered by BCL to be best practice, for it is estimated that by going to best

practice the producing and service sectors of the economy can save about $2 B in maintenance

costs. The only changes considered by BCL in going to best practice are therefore in maintenance

costs and equipment life. Maintenance costs are decreased and equipment life is increased in the BCL results! The assumption of no change in input coefficients leads to an unusual (although not impossible) result. It implies that the cost of capital equipment would decrease, and yet the equipment would last longer. This comes about because the capital producing sectors would have

lower costs (because of lowered maintenance in going to best practice) and, hence, could afford to charge less for their equipment. The users of the capital equipment, in turn, would also have lower

maintenance costs, and in addition would pay less for their equipment. At the same time, they

would be saving an estimated $12.5 B of costs caused by shortened equipment life in World I as compared to World HI.' It is to be noted that in the BCL results all sectors would lower

maintenance costs in going to best practice.

Both results, namely that best practice maintenance would lead to a decrease in maintenance costs in all sectors, and that best practice requires only a negligible change in A

matrix input and value added coefficients, must be questioned, although the first result is more

reasonable than the second. To investigate these questions in a quantitative manner would,

unfortunately, involve a great deal of analysis. We can, however, reason, that the BCL result is very likely an upper estimate on the Intermediate Output avoidable costs, although as BCL

assumed, the overestimate may not be significant. Certainly, it is hard to conceive that better corrosion practice manufacturing technology would decrease manufacturing costs, for this would

imply that capital equipment manufacturing industries are, in most cases, incurring added costs to make equipment wear out sooner. Moreover, with respect to maintenance costs, the conventional

wisdom is that more money spent on corrosion prevention maintenance will more than pay for

itself in extended life. The BCL results, on the other hand, show that all the producing sectors of the economy could spend less for maintenance and still achieve extended life. While not

impossible, this also has to be considered an upper limit on the possible savings. Hence, almost

every alternative in the BCL results will tend to lower the estimate of avoidable costs in Intermediate Output. Indeed, it is not unlikely that the avoidable costs might be negative when

manufacturing inputs are changed appropriately.

*In this report, see also automobiles in PCE. There, 90 percent of lifetime costs of automobiles {$13.9 B out of $15.4 B) were estimated by BCL to be avoidable

with no change in maintenance expenditures. That such a large saving could be accomplished with negligible changes in manufacturing input to the automobile

sector, or in value added, is highly questionable.

A-15
Unfortunately, at this time we are unable to make even a rough estimate of the lower bound

of the estimated avoidable costs in Intermediate Output. All that we can do is to label the lower

bound Y, and let the estimate of the value of Y await further analysis.

5. Uncertainties in Capital Costs—PFCF

5.1 Introduction

The corrosion cost due to capital replacement is given by the second and third terms of eq.

(1). Each of these terms is a sum of two matrices times a total output. However, each of the elements of the sum of these two matrices will be similar in form to eq. (7), with, however, the term K' in that equation replaced by the capital/ output coefficient, which, when multiplied by the

total output vector will give the capital stock. Hence, the uncertainty will depend upon:

1) Uncertainties in total output. This is similar to the problem discussed previously in Section 4.2. The uncertainty of the total arising from this source is felt to be small,

and will be neglected.

2) Uncertainties in the capital-output coefficient.

3) Uncertainties in the growth rate.

4) Uncertainties in the lifetime of equipment.

It is clear from this that the analysis is very similar to that given in Sections 3.1.1.2 and

3.1.3.2 with one important difference. In the BCL treatment of capital costs, they are driven by

changes in stipulated final demand. This is taken care of appropriately by the use of the "dynamic

inverse" (see page 22ff in the BCL report). The result of this treatment of PFCF is that even in the absence of redundancy (changes in the B matrix) and lifetimes (changes in the R matrix), there

will still be a corrosion cost associated with PFCF because of the lower stipulated final demand in the absence of corrosion, or possibly, in best practice. This is a correct treatment of corrosion costs for capital, and represents a significant advance over previous studies. This point will, however,

not be pursued, since it is not germane to the uncertainty problem.

In Table A-6, we show the BCL results for all the sectors listed in Table 2 of the BCL

report. In Table A-7, we show the total cost contributed by this sector; the percentage of these

costs of the total PFCF costs, for each sector; the avoidable costs; and the percentage of the total avoidable PFCF costs; the percentage of the total costs that are avoidable; and the BCL rating for each sector as to the Best Practice Impact. The sectors shown in this table represent 78 percent of

the actual PFCF costs and 86 percent of the avoidable PFCF costs. Two things are immediately evident from this table. First is the importance of the automotive sector. In the BCL results, this sector accounts for 35.8 percent of the PFCF total costs and 42.9 percent of the avoidable costs. The second is the disparity between the rating and the percentage of actual costs that are avoidable. Thus, the rating "minor" (14 entries) encompasses

the range of 17 to 67 percent avoidable costs, with a relatively uniform distribution over this range. The rating "moderate" (4 entries) encompasses the range of 51 to 62 percent avoidable

costs, and the rating "major" (5 entries) encompasses the range 40 to 65 percent avoidable costs. There seems to be little, if any, relationship between the rating and the percentage avoidable costs. Now, BCL meant to assign the terms "minor", "moderate", and "major" to the effect on lifetime. Hence, again the difficulty of relating lifetime estimates to corrosion costs becomes apparent, as discussed above in detail in Section 3.1.3, for the personally-owned automobile. Since the automobile is again the single largest source of costs, we begin by a discussion of the effect of

lifetime on the costs caused by it in PFCF.

A-16
Table A-6. PFCF Costs by Sector,* $M

BCL Results

Total %of Avoidable %of % Best Practice Costs Total Costs Total Avoidable Input

8.02 Metal Bbis 4 .016 0.3 .002 7.5 minor

8.04 Heat Equip. 2.3 .01 1.5 .012 65 major 8.05 Fabr. Metal 1044 4.33 692 5.56 66 major 8C07 Gen. Hardware 282 1.17 145 1.16 51 moderate

9.01 Engines & Turbines 334 1.38 92 .74 27 minor

9.02 Gen. Machinery 851 3.53 442 3.55 52 major

10.01 Farm Machinery 1221 5.07 815 6.54 67 minor

10.02 Const. Machinery 1415 5.87 878 7.04 62 minor

10.03 Mining Machinery 81 .34 34 .27 42 minor

10.04 Oil Field Mach. 112 .46 55 .44 49 minor

10.05 Material Handling 343 1.42 162 1.30 47 minor

10.08 Special Machinery 670 2.78 307 2.46 46 major llAOl Automobiles 8641 35.9 5348 42.91 62 moderate llBOl Trucks, Buses 2006 8.3 1077 8.64 54 minor

11.02 Aircraft, etc. 227 0.9 10 .08 4 minor

11.03 Ships 91 .38 49 .39 54 moderate 11.04 Railroad 267 1.11 107 .86 40 major

12.03 Indust. Controls 340 1.40 100 .80 29 minor

12.04 Electric Lamps 0.5 AO 1 Q .Ul OA minor

13.01 Service Machinery 568 1.35 309 2.4« 54 moderate

13.02 Household Appl. 92 .38 44 .35 48 minor

13.03 Radio, TV, etc. 163 .67 28 .22 17 minor

14.01 Sci. Instruments 146 .60 25 .20 17 minor

'This table lists ill the sectors for which BCL made replicemeDt life tdjustments.

Table A-7. Effect on Corrosion Costs of Changes in Automobile

Lifetime Assumptions*

Corrosion Cost, Corrosion Cost, WorWI World n % Change World III % Change

Case Life, Yrs. Life, Yrs. from Case 1 Life, Yrs. from Case 1

1) 3-5* 6-8-^

2) 4-6 7-9

3) 3-5 6

4) 2-4 5-7

5) 3-5 3-7

0 4-7+ 0 -32 5-8 -34

-19 4-6 -22 +65

-63

Calculated with g=0.0607.

'''Case used by BCL.

5.2 Effect of Lifetime

5.2.1 Capital Costs for Automobiles

The equation used for this calculation is eq. (7), as already discussed. Now, this expression,

as already noted in Section 3.1.3.1.1, is extremely sensitive to short lifetimes. Moreover, the cost

is dependent on the actual value of the lives chosen not on only the difference between World I and the world in question.

We have carried out illustrative calculations to see what effect on corrosion cost small changes in estimated life can have. These are shown in Table A-7. Here we have shown three

A-17
cases. Case 1 is the case used by BCL. For Case 2, the lifetimes in each world have been increased by one year, keeping the difference constant. In World II, the corrosion costs decrease by 32

percent, and in World III by 34 percent, as compared to the BCL case. In Case 3, World II, the

lifetime has been set at 6 years, since a value higher than this seems unrealistic for a commercially

used automobile.* The corrosion costs decrease by 19 percent as compared to the BCL case. In Case 3, World III, we have used a range of three years for the life, rather than four, as was done

by BCL. The decrease in corrosion cost is 22 percent as compared to the BCL case. In Case 4, we

have unrealistically lowered all the lifetimes by one year. There is an increase in corrosion costs of 65 percent, but this is unrealistic in that it could not be argued that a two-year-old car would be

replaced because of corrosion.

Finally, in Case 5, we have calculated the case in which the lifetime goes from 3-5 years in World I to 3-7 years in World II. The reasoning here is that cars that are replaced after three years are not replaced because of corrosion, while those that are replaced after five years may be,

and would have their lives extended to seven years in World II. This leads to a corrosion cost 63

percent below that estimated. It appears, therefore, that other and perhaps equally reasonable

estimates can lead to the conclusion that the BCL results may represent an overestimate as large as $5 B in World II. This analysis again demonstrates the sensitivity of the results to estimates of the

lifetimes.

5.2.2 Other Sectors

Without detailed analysis, no definite statement can be made about the other sectors. The

most critical of them would, of course, be the ones with short lifetimes, since, as already noted, the

analysis is very sensitive to even minor changes in the estimates when short lifetimes are changed

to long. The sectors where this occurs (see Table 2, BCL report) are 8.05 (4.3 percent of PFCF

costs), 10.02 (3.6 percent of PFCF costs) 10.04 (0.46 percent of PFCF costs), and llBOl (8.3 percent of PFCF costs). These four sectors account for $4.7 B, or 19.2 percent of the total PFCF

costs. While no specific calculations have been made, analogy to the automobile case suggests that the estimate for these sectors may be somewhat high.

In other cases, where the lifetime is long, the results are much less sensitive to uncertainties

in the lifetime, and even more important, are not likely to lead to a systematic overestimate.

It is to be noted that the lifetimes used for World I were those obtained from Bulletin F of

the IRS. These are lifetimes for depreciation. The actual useful life of equipment can be

considerably longer. To the extent that the lifetime in World II is estimated as an increment on

the Bulletin F lifetime, then the use of this lifetime will overestimate the cost, but the actual magnitude of the error is difficult without detailed study of individual sectors. Except in rare cases, redundancy was not taken into account. This will, of course, underestimate the costs in those sectors where some redundancy exists.

It is well nigh impossible to take all these factors into account quantitatively with our stage of knowledge. Considering the model calculations done on the automobile, a reasonable estimate of

the uncertainty is that the BCL estimate for PFCF other than the automobile, may be high by $1

to $2 B, with an uncertainty of ±40 percent.

5.3 Uncertainties in Capital-Output Coefficients and Growth Rates

Both these quantities were obtained by regression analysis. The uncertainty in these is expected to be insignificant compared to that caused by uncertainty in lifetimes, and hence, are not considered.

*The median life of automobiles in the U.S. is approximately 9.6 years. Commercially-owned automobiles, which are used more intensively than personally-owned

automobiles, are expected to have a shorter life.

A-18
5.4 World III

The costs estimated for World III are based on highly subjective judgments as necessitated by the lack of data. As a result, the data for World III for PFCF are some of the most

questionable in the whole report. This is hardly surprising, since lifetime data of the type required

are very difficult to obtain. However, inspection of the results in Table A-6 leads to some important conclusions. The

first is that generally speaking the percentage of avoidable costs is very high, particularly when

compared to, for example, FGE, which BCL estimates to be 21 percent avoidable. Further, an

analysis of the Industry Indicators shows that for even the least corrosion-aware industries, the

non-capital parts of the costs are 35 percent or less avoidable, as compared to the capital costs, which go up to 67 percent avoidable. The second observation is that, as already noted, there appears to be no relationship

between the qualitative judgments of the effect of best practice ("minor", "moderate", and

"major") and the percentage of avoidable cost, as already mentioned above. Another attempt at obtaining the avoidable costs can, however, be made in the following way. Let us assume that the estimate "minor" means an avoidable cost of 10 to 30 percent

(average 20 percent), and estimates of "moderate" means 30 to 45 percent (average 37.5 percent)

and an estimate "major" means 45 to 60 percent (average 52.5 percent). These are, generally

speaking, the judgment of BCL experts on the effects of corrosion in the various sectors. In Table

A-8, we show a recalculation of the avoidable costs on this basis, using in each case the average

percentage avoidable. Calculated in this way, the percent avoidable for PFCF is 32.4 percent,

which seems more reasonable in view of the qualitative estimate. Hence, we obtain the following estimate for the PFCF avoidable costs. We subtract $5 B from the total costs of $24.1 B to account for the possible overestimate discussed in the preceding sections, and take 32.4 percent of

the remainder as representing the avoidable costs. The result is $6.2 B, with a subjectively

estimated range of $3.0 B to $19.1 B.

6. Summary and Conclusions

All the preceding results are summarized in Table A-9. In this table, we have given the BCL

results, and the results derived in this appendix, along with the associated ranges. No statistical significance must be associated with these ranges. They are not 66 percent or 95 percent confidence

levels. They are often subjective, and represent essentially the ranges that could be obtained with

reasonable estimates other than those made by BCL. Hence, it follows that the lower and upper

values of the estimate may be just as likely as the mid-value. Some important differences arise. The first is in the total cost. The estimate in this Appendix is $69.7 B (rounded to $70 B), with a range of $52.7 B to $86.2 B, as compared to a BCL estimate of $82.4 B with no range given. The important point to note is that whether the

actual cost is $52.7 B or $86.2 B, it is still very high.

Another important point is that most of the uncertainty in the costs arises from the

uncertainties in the lifetime of equipment with and without corrosion. Since the automobile is the

largest item of capital equipment in the economy, it is by far the largest influence. This is reflected in PCE and PFCF.

For the avoidable costs, our estimates are substantially different from those of BCL. Indeed, we have an unknown factor of "Y," as discussed above in Section 4.4. The range we have given is very large, since we have made it to include the whole range of estimates. Our estimate for the

total is $15.4 B, to be reduced by "Y" when it becomes available.^ The large difference between

our estimate and that made by BCL is because of the difficulty of determining the effect of

corrosion on equipment lifetimes, and incorporating the reasons for those changes in the

accounting. The necessary data is, in most cases, not available, and even when available, the

analytical methods of treatment are very sensitive to the actual values used, as we have shown. If

' A rough estimate for "Y" is given as a footnote to the uble.

A-19
Table A-8. Recalculation of Avoidable Costs, $M

(Private Fixed Gtpital Formation)

NBS

sector DLLTotal Cost Rating

BCL

Avoidable Lost

Recalculated Avoidable Cost

8.02 4 minor 0.3 0.80 8.04 2.3 major 1.5 1.2 8.05 1044 major 692 548.1 8C07 282 moderate 145 105.8

9.01 334 minor 92 66.8

9.02 851 major 442 446.8

10.01 1221 minor 815 244.2

10.02 1415 minor 878 283.0

10.03 81 minor 34 16.2 10.04 112 minor 55 22.4

10.05 343 minor 162 68.6

10.08 670 major 307 351.8 llAOl 3641* moderate 2257** 1365 llBOl 2006 minor 1077 401.2

11.02 227 minor 10 45.4

11.03 91 moderate 49 34.1 11.04 267 major 107 140.2 12.03 340 minor 100 68.0 12.04 6.5 minor 1.3 1.3 13.01 568 moderate 309 213.0

13.02 92 minor 44 18.4 13.03 163 minor 28 32.6

14.01 146 minor 25 29.2

Totals 13906.8 7631 4504.1

•Corrected from BCL results given in Table A-6 on the basis of discussion in Section 5.2.1. '•Calculated as 62 percent of total cost (Column 2), in accordance with BCL result {See Table A-6).

Table A-9. Summary of Results

Total Costs ($B) Avoidable Costs ($B) BCL NBS BCL NBS

Sector BCL Range NBS Range BCL Range NBS Range

PCE 22.8 15.8 10.3-21.3 15.9 4.9 3.8-15.9 FGE 8.1 7.9 6.2- 9.6 1.7 1.7 0.8- 2.5 S/LGE 2.9 2.4 1.2- 3.6 0.9 0.9 0.5- 1.4 10 24.5 24.5 23.5-25.0 2.0 2.0-Y - Y- 2.0 PFCF 24.1 19.1 11.5-26.7 12.5 6.2 3.0-19.1

Total 82.4 69.7 52.7-86.2 33.0 (15.7-Y)* (8.1-Y)-40.9

*The value of Y is a matter of speculation, but assuming it costs between 10 and 70 percent of the expected final demand gain for best practice (extra coatings, etc.), Y would be between $1.4 and $9.6 B, and the total avoidable costs would be between $6.1 and $14.3 B, or about 10 and 20 percent of the total cost. Note that these values of Y could make the avoidable 10 contribution negative. This would mean an increased cost to manufacturers in a best practice world, to achieve a net savings to manufacturers plus final demand (life-cycle costs).

I

A-20
any further study were to be done, this is the area in which the main effort should be placed. At

the present time, the estimate of avoidable cost has only marginal utility, with respect to the

detailed accounting of how it arises. This Appendix has concentrated heavily on the automobile sector, both for PCE and PFCF.

This was not intentional, but was inevitable. In any estimate of uncertainty, the sector with the

largest costs must be investigated in detail. Because in the BCL results the automobile represents

by far the sector with the largest costs, we were inevitably led to consider it in greater detail than

other sectors.

7. References to Appendix A

[1] "Automobile Facts and Figures," Automobile Manufacturers Association, 1976.

[2] F. Gornick and E. Passaglia, "A Dynamic Model for a Population of Durable Goods," Resource Recovery and Conservation, 2, 193-209 (1977).

[3] B. B. Hundy, "The Durability of Automobiles," Resources Policy, Sept. 1976, p. 179.

A-21
M6S-114A (REV. 7-73)

U.S. DEPT. OF COMM. BIBLIOGRAPHIC DATA

SHEET

1. PUBLICATION OR REPORT NO. NBS SP 511-1

2. Gov't Accession

No.

3. Recipient's Accession No.

4. TITLE AND SUBTITLK

Economic Effects of Metallic Corrosion in the United States

A Report to Congress by the National Bureau of Standards

5. Publication Date Mav 1978

6. Performing Organization Code

7. AUTHOR(S) L.H. Bennett, J. Kruger, R.L. Parker, E. Passaglia,

C, Reimann, A.W. Ruff, and H, Yakowitz

8. Performing Organ. Report No.

9. PERFORMING ORGANIZATION NA.ME AND ADDRESS

NATIONAL BUREAU OF STANDARDS

DEPARTMENT OF COMMERCE

WASHINGTON, D.C. 20234

10. Project/Task/Worlc Unit No.

11. Contract/Grant No.

12. Sponsoring Organization Name and Complete Address (Street, City, State, ZIP)

SAME

13. Type of Report & Period Covered

14. Sponsoring Agency Code

15. SUPPLEMENTARY NOTES The report consists of 3 parts, the NBS report and its 2 separate

appendices B & C. Appendix B has been prepared by Battelle; Appendix C is I/O matrix

tables. Library of Congress Catalog Card Number: 78-600033.

16. ABSTRACT (A 200-word or less factual summary of most significant information. If document includes a significant

bibliography or literature survey, mention it here.) In response to a Congressional directive, this study of the cost of metallic

corrosion to the United States was undertaken by the National Bureau of Standards (NBS).

The analysis required in this study was placed under contract to the Battelle Columbus

Laboratories (BCL) . The overall study was conducted jointly by BCL and NBS. The study

was designed to provide a reference to allow the economic' impact of corrosion to be

compared with other factors affecting the economy.

In 1975, corrosion cost the United States an estimated $70 billion. This was 4.2

percent of the estimated Gross National Product for that year. Of this total, about 15

percent or $10 billion was avoidable. An uncertainty of about ±30 percent for the total

corrosion cost figure results from inadequate data in some areas and unsure technical

and economic judgments. The uncertainty in the avoidable costs is considerably greater.

This study used a modified version of the BCL National Input/Output Model. The

model quantitatively identifies corrosion-related changes in resources (material, labor,

energy, value added), changes in capital stock, and changes in replacement lives of

capital stock for all sectors of the economy. The use of this model is well suited for

estimating the total direct and indirect costs of corrosion.

17. KEY WORDS (six to twelve entries; alphabetical order; capitalize only the first letter of the first key word unless a proper name; separated by semicolons) Battelle Columbus Labs ; Corrosion; Cost of Corrosion; Economic

effects; I/O Model; Metallic corrosion.

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